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