A short lecture on health care financing with reference to Kenya

1. KENYA MEDICAL TRAINING
COLLEGE HSM II:
FINANCIAL RESOURCE
MANAGEMENT
BY
AGGREY MAKOKHA
HEALTH SYSTEMS SPECIALIST

2. HEALTH FINANCING
DEFINITION
What is health financing?
Health financing refers to the “function of a
health system concerned with the mobilization,
accumulation and allocation of money to cover
the health needs of the people, individually and
collectively, in the health system… the purpose of
health financing is to make funding available, as
well as to set the right financial incentives to
providers, to ensure that all individuals have
access to effective public health and personal
health care”

3. Course objectives
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We will look at the following:
Sources of health financing
Financial accounting systems and mechanisms
Accounting documents
Types of budgets
Facility improvement fund
Payment mechanisms in health financing

4. HEALTH FINANCING IN
DETAIL
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It encompasses resource mobilization allocation and
distribution at all levels/ national to local including
how providers are paid.
Refers to methods used to mobilize the resources
that support basic public health programs, provide
access to basic health services.

5. UNIVERSAL HEALTH COVERAGE
Is defined as ensuring that all people have access to
needed promotive, preventive, curative and
rehabilitative health services of sufficient quality to
be effective.
Access to needed health services is crucial for the
maintaining and improving health.
People need to be protected from out of pocket
spending that can lead to financial catastrophe.

6. Changing government role in
health care
Health is considered a public good
Government needs to actively participate
to avoid market failures
The Parliament, treasury , the controller
and auditor general play a major role in
public financial management.

7. Role of parliament in Kenya in
managing financial resources
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Section (99) through to Section (103) of the Constitution
gives parliament the authority to oversee the finances of
the country including the budget. The key responsibility
of Parliament is to ensure that:
i.) The resource collection and mobilisation policies are
sound and in tune with the laid down legislations

8. Contd…
iii.) The expenditure programs are sound
iv.) The budget is implemented as it was approved in
parliament
v.) the budgetary items are in line with the existing
legislation
ii.) The appropriations match the needs of the people

9. ROLE OF PARLIAMENT,
AUDITOR GENERAL AND THE
CONTROLER
The Controller and Auditor General is a corollary
to the Public Accounts and Public Investments
Committees.
The relationship between the Auditor-General
and Parliament emanates from the Constitution.
 The relationship between the two should be
balanced so that their roles and independence
remain clearly defined and separate. The
provision of fair and impartial audit reports and
information to Parliament through the Public
.

10. Contd….
Accounts/Investment Committees and the presence
of the Auditor-General during its deliberations on
the audited accounts of the republic and any other
bodies which received public funding are important
measures of necessity to assure the taxpayer that
there exists a body to investigate accountability on
behalf of Parliament.
In turn, a close working relationship between the
Auditor-General and Parliament enhances public
confidence that resources are used with due regard
to the efficient and effective running of the economy

11. EXTRA PARLIAMENTARY
OVERSIGHT INSTITUTIONS
The auditor General and the controller are offices of the
public and they are supposed to provide an oversight and
accountability to the funds and how they are spent and
managed.
It shall be the duty of the Controller and Auditor General:-
(a) To satisfy himself that any proposed withdrawal from the
Consolidated Fund is authorized by law, and, if so satisfied,
to approve the withdrawal;
(b) To satisfy himself that all moneys that have been
appropriated by parliament and disbursed have been applied
to the purposes to which they were so appropriated and that
the expenditure conforms to the authority that governs it;
and

12. Contd…At least once in every year to audit and report on the
public accounts of the .Government of Kenya, the accounts
of all courts in Kenya (other than courts, no part of the
expenses of which are defrayed directly out of moneys
provided by parliament), the accounts of every
commission established by this constitution and the
accounts of the Clerk of the National Assembly.
The Controller and Auditor-General and any officer
authorized by him shall have access to all books, records,
returns, reports and other documents which in his opinion
relate to any of the accounts referred to in subsection (2).
The Controller and Auditor General shall submit every
report made by him in pursuance of subsection (2) to the
Minister for the time being responsible for Finance who
shall, not later than seven days after the National
Assembly first meets after he has received the report, lay it
before the assembly.

13. TREASURY DUTIES
 establish procedures and systems for proper and
effective management of government money and
property;
 establish accounting procedures and systems for the
government to properly account for government
money and property;
 superintend the expenditure of government money to
ensure that it can be properly accounted for;
prepare and submit accounts for each financial year
under the Public Audit Act, 2003' for audit by the
Controller and Auditor-General; and‘
ensure- that the accounts prepared under paragraph.
(d) comply with the provisions of this Act

14. SOURCES OF HEALTH CARE
FINANCING
 Through private expenditure or public
expenditure or external aid
Public expenditure includes all expenditure on
health services by LOANS ,TAXES, FEES,
DONOR GRANTS
External sources refer to the external aid
which comes through bilateral aid program or
international non governmental organizations
House hold out of pocket expenditure is an
example of private financing.
Give some more examples…….

15. 1) TAX-BASED SYSTEMS
Tax-based systems is a form of risk pooling in which
the risk pool is the entire population of taxpayers.
It requires a competent government that are capable
of collecting, managing and dispersing funds in a
responsible and accountable manner.

16. 2) PAY AS YOU USE :USER-FEES
Also known as ‘User-charges’.
This is the normal way that we pay for most
goods and services, and represents a market-
based solution for healthcare financing.
User Charges have a disproportionate effect on
the utilization of services by the poor, thus
raising equity concerns.
In resource poor environments user-fees can be
a significant barrier to accessing care and
removal of fees can increase utilization of
services.

17. 3) RISK BASED (PRIVATE) INSURANCE
Entitlement to healthcare is guaranteed via making
contributions (insurance premiums) that are related
to the risk of such an event.
It redistributes from the well to the sick, and from
the lucky to the unlucky.
As costs rise, insurance premiums rise, and the very
poor and sick drop out of the system.
Such systems do little to improve the access to
healthcare for the poor, the elderly, and people with
chronic illness.

18. 5. Donor Funding
External donor funding is a significant source of
healthcare funds throughout the developing world.
Many of the least developed countries are heavily
reliant on donor funding.
Donor funding is normally dispersed via
government-run health financing systems), however
it can also be given to non-governmental, and other
private organisations.

19. 4) SOCIAL HEALTH INSURANCE
Social health insurance (SHI) systems raise funds via
broad based, often compulsory insurance. No one is
excluded from such schemes, in contrast with private
risk-based systems.

20. FINANCIAL ACCOUNTING
SYSTEMS
We will look at the following:
Imprest
Vouchers
Perdiem
Facility improvement fund
Salary
Allowances
Vote books

21. IMPREST
Is a form of financial accounting system.
The most common imprest system is the petty cash
system.
The most important characteristic of imprest system
is that a fixed amount is reserved which after a
certain period of time it will be replenished
Petty cash imprest system allows only replenishment
of the spend made.

22. Contd…ADVANTAGES OF IMPREST
SYSTEM
The claimant can only spend what they have and is
only replenished with what they spend.
The amount requested is documented. This
documentation are the petty cash dockets and their
associated receipts or invoices.
Petty cash receipts are written for each amount
issued.

23. Voucher system
This is a system in which a receipt representing
monetary value is issued but can only be spent on
certain items.
For example a charity organization can offer a health
centre a voucher to provide assistance in paying the
utility bills.

24. SALARY
Agreed upon and regular compensation for
employment that is common practice paid on a
monthly or bi weekly basis and is not based on
hourly , daily or weekly or piece work basis.
Wage on the other hand is monetary remuneration
computed on hourly, daily, weekly or piece work
basis.

25. Contd..
Therefore, salaried doctors in the public sector are
often associated with low motivation, low
productivity and low quality of services.
 Salaries are also being combined with capitation
and performance based components to promote
motivation as well as higher productivity and quality.

26. Advantages and disadvantages
Cost containment
Equitable provision
Easy administration
Disadvantages:
Low productivity
Low quality of care or service delivery
Low morale of the providers

27. FACILITY IMPROVEMENT
FUND
Is revenue collected at public health facilities as user
fees paid to defray the costs of running these
facilities.
The fund is usually vital in enabling facilities to
manage their day to day expenses and manage
situations where emergency supplies have to be
acquired.
However most health facilities in Kenya are facing
challenges regarding this facility improvement fund:

28. Challenges:
There is a lot of bureaucracies when the facility is
trying to get the money disbursed to them from the
county government(county treasury)
Corruption and total misuse of the funds by the
county treasury of the facility.
Lack of financial management tools for managing
and planning of the FIF funds.

29. VOTE BOOK
Is an account book which is used to record and
monitor expenditure in the public sector. The
information on these books is subject to auditing to
ensure that budgets are well controlled and coincide
with financial regulations
Public sector such as govt, health institutions and
schools use vote books systems.

30. Advantages of vote books
Ensure no extra budgeting spending.
Highlight unnecessary expenditure out of the
ordinary.
Show the balance available so the organization can
keep on top of their finances
Ensure that sufficient funds are available for future
payments.

31. Per diem
Daily payment gives hospitals a strong incentive to
increase the number of admissions and to extend the
length of stay, thereby enhancing health expenditure.
Quality and lengths of stay can be monitored by peer
reviewers. It is administratively simple to implement
and it can be used to begin collecting the data that
are necessary to design a case-based system.

32. Contd…
Unit of payment is per day for different hospital
departments. Financial risk for provider is low and
for payer it is high.

33. Different financing methods available
and organization of the financing systems
Financing Systems
External financing
“Aid” Internal financing
Public systems of
health services
Social insurance
systems (illness)
Unified
System
Fragmented
System
User
payments
For-profit
or
Non-profit
private
insurance
Medical
savings
voluntary
or compulsory
Social
contributions
employers
employees
Methods of public financing Methods of private financing

34. Provider payment
methods/mechanisms
Fee for service
Line item
Per diem
Per capita
Case based

35. Fee for service
Fee for service
Provider is reimbursed for each individual service
provided. It may be either input-based or output-
based. Input-based if there is no fixed-fee schedule
and if services are not grouped.
 Providers are permitted to bill purchasers for all
costs incurred to provide each service retrospectively
as is the case in countries

36. Per capita
Per capita
The provider is paid, in advance, a predetermined
fixed rate to provide a defined set of services for each
individual enrolled with the provider for a fixed
period usually one year.
Output-based, and the unit of output is the coverage
of all predefined services for an individual for a fixed
period.

37. Contd…
Payment to a provider is not linked to the inputs that
the provider uses or the volume of services provided.
Some risk is shifted from the purchaser to the
provider and if provider incurs costs that are greater
than the per capita budget, the provider is liable for
them

38. Case based
Case-based hospital payment systems create the
incentives to increase the number of cases and to
minimize the inputs used for each case because
providers have more control over resource use per
case than over the total number of treated cases.
Minimizing the inputs is typically stronger (in
terms of availability of provider manipulation),
and therefore case-based hospital payment
systems have been used as a mechanism to control
costs and reduce capacity in the hospital sector

39. BUDGETING AND BUDGET
TYPES
Budgets are expressions of expected future income
and expenses.
They are generally based on historical data, if
available, and adjusted based on assumptions
regarding inflation, increases or decreases in income
or expenses, and expected expansion of programs
and services.

40. The main sources of finances for the government
are:
 Ordinary revenue: which represents the
amount of money raised in a given period through
taxes such as income tax, corporation tax, stamp
duties, Value Added Tax (VAT) and excise duties.
 User charges: which are fees charged to
consumers of goods and services produced by the
government. These are only paid by those who use
the services, such as birth certificates, driving
licences, passports and registration of real estate
properties.
 Sale of assets: which includes the sale of
bonded goods and other assets including shares in

41.  Investment income: which represents income
derived from public commercial activities, e g.
dividends and interest on on-lent funds, from
Central Bank and state corporations.
 Grants from foreign governments: which are
non repayable funds provided by foreign
governments for a specific purpose.
 Borrowing: which are repayable funds loaned by
foreign government, donors or domestic markets.

42. principles of a good budget
A good budget should have the following
attributes:
 Comprehensiveness: which means that the
budget includes all fiscal operations, on receipts
and expenditure sides, within a sustainable
macroeconomic framework.
 Predictability: which means that the
budget should be predictable within a medium
term horizon.
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43. contd...
 Transparency: which means that the budget
should be prepared and presented openly and
information should be available on a timely basis.
 Periodicity: which means that that the budget
should cover a specific period of time.
 Contestability: means that economic actors
compete fairly for resources and can challenge or
question the Government on any of the items in the
budget, or on any of its priorities.
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44. Stages in The Budget
Process
 Many Kenyans perceive the national budget process as a
one time event marked by the budget speech, delivered by
the Minister for Finance, in the month of June every year.
The Kenyan budget cycle passes through the following
four major phases:  Budget planning and
preparation  Budget proposal, debate and approval 
Budget execution (implementation, supervision and
audit)  Budget monitoring and evaluation
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45. Types of budgets
Annual Budgets
An annual budget is a budget that is developed for
a year long period of time. An annual
budget is often the organization's yearly budget that
they would publish in summary form in
their annual report or business statements.
Depending on the organization, an annual budget
could operate according to the financial year (e.g. 1
July 2000 - 30 June 2001) or the calendar
year (e.g. 15 January 2000 - 31 December 2001).
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46. contd...
Operational Budget
An operational budget can also be called an
organisational budget. This type of budget
highlights the income earned and expenditure that is
incurred by an organisation.
Operational budgets may be broken into areas/
departments so that these areas/departments have
their own budget allocation to operate within.
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47. contd...
Program Budget
A program budget highlights the income and
expenditure that is incurred for the development and
implementation of a specific program.
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48. TAKE HOME ASSIGNMENTS
TYPES OF BUDGETS- READ MORE AND
MAKE SHORT NOTES
THE BUDGET PROCESS- READ MORE AND
MAKE SHORT NOTES.
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49. QUESTIONS????
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