Health Sector Expenditure Framework HSEF: A Multi-year Spending Plan for the Department of Health

1. Health Sector Expenditure Framework (HSEF):A Multi-year Spending Plan for the Department of Health Rosario G. Manasan

2. Outline of presentation HSEF/ Purpose Estimates of resource requirements and gaps in the context of DOH budget reforms Alternative HSEF scenarios

3. medium –term expenditure estimates for the health sector compares cost estimate-requirements with the amount of funds that is projected to be available for the implementation of priority and critical programs and projects i.e, Fourmula One for Health PPAs What is HSEF ?  The objective of this exercise is to develop a policy-based expenditure estimates for the health sector or a HSEF in support of F1. It is hoped that HSEF will be a useful input in the formulation of the Budget Strategy Paper. The objective of this exercise is to develop a policy-based expenditure estimates for the health sector or a HSEF in support of F1. It is hoped that HSEF will be a useful input in the formulation of the Budget Strategy Paper.

4. WHY HSEF? IMPORTANT INPUT FOR THE IMPROVEMENT OF PUBLIC FINANCE MANAGEMENT Injects policy and strategic focus at the budget preparation stage Strengthens the impact of policy priorities on budget allocation Commits decision-makers to a sustainable fiscal policy and a clear set of sectoral priorities Encourages a medium –term/ multi-year perspective to decision-making F1 Paper proposal: DOH to influence access, quality and cost of care in local markets by moving subsidies to regional facilities outside NCR F1 Paper proposal: DOH to influence access, quality and cost of care in local markets by moving subsidies to regional facilities outside NCR

5. Over the last few months, the Fourmula One for Health was given flesh through a reiterative process among the different teams of the Department of Health and through the planning sessions of 16 participating provinces. The objective is to identify and implement critical programs, projects and activities with speed, precision, and effective coordination that will deliver efficiency, effectiveness, and equity of health care delivery.Over the last few months, the Fourmula One for Health was given flesh through a reiterative process among the different teams of the Department of Health and through the planning sessions of 16 participating provinces. The objective is to identify and implement critical programs, projects and activities with speed, precision, and effective coordination that will deliver efficiency, effectiveness, and equity of health care delivery.

6. Estimates of resource requirements for various programs in health sector derived in this study are reflective of some efficiency improvements in service delivery estimates assume lower wastage factors estimates assumes better targeting of subsidies

7. How much is needed to meet MDGs? Table 11 presents the cost estimates of key public health interventions needed to attain MDG targets and compares them with the resources that are available in 2006. It should be stressed that the estimates presented in this table are lower than corresponding estimates obtained from DOH program managers. In particular, the resource requirement for EPI is estimated by assuming lower wastage factors than those given in the EPI Logistic Manual of the DOH. Also, the coverage rate used to arrive at the estimate of the resource requirement for micronutrient supplementation is lower than the estimates of the program managers because of the food fortification program. On the other hand, the estimate of the funding requirement of the malaria prevention such mosquito nets and spraying of insecticides was cut in half by assuming that better-off households will shoulder part of the cost. Table 11 presents the cost estimates of key public health interventions needed to attain MDG targets and compares them with the resources that are available in 2006. It should be stressed that the estimates presented in this table are lower than corresponding estimates obtained from DOH program managers. In particular, the resource requirement for EPI is estimated by assuming lower wastage factors than those given in the EPI Logistic Manual of the DOH. Also, the coverage rate used to arrive at the estimate of the resource requirement for micronutrient supplementation is lower than the estimates of the program managers because of the food fortification program. On the other hand, the estimate of the funding requirement of the malaria prevention such mosquito nets and spraying of insecticides was cut in half by assuming that better-off households will shoulder part of the cost.

8. How much is the resource gap? Table 12 presents resource gaps for public health. The estimated resource gap (reckoned relative to 2006 budget cover) for key public health interventions ranges from PhP 478.8 million in 2007 to PhP 532.7 million in 2010. Table 12 presents resource gaps for public health. The estimated resource gap (reckoned relative to 2006 budget cover) for key public health interventions ranges from PhP 478.8 million in 2007 to PhP 532.7 million in 2010.

9. The higher allocation for PHIC premium subsidies in recent years is not enough to fully cover requirements of the program. Table 15 shows that the resource requirement and gaps both at the national and local level of the premium subsidies for the indigent program if the NG provides subsidies for the health insurance premiums of all poor households. To improve the utilization of the premium subsidies for the PHIC indigent program, it is essential that better targeting is achieved through appropriate poverty mapping. This will be done in the convergence sites but should also be scaled up to cover a wider area.The higher allocation for PHIC premium subsidies in recent years is not enough to fully cover requirements of the program. Table 15 shows that the resource requirement and gaps both at the national and local level of the premium subsidies for the indigent program if the NG provides subsidies for the health insurance premiums of all poor households. To improve the utilization of the premium subsidies for the PHIC indigent program, it is essential that better targeting is achieved through appropriate poverty mapping. This will be done in the convergence sites but should also be scaled up to cover a wider area.

10. DOH Spending patterns and trends (1) Retained hospitals have consistently captured about two-thirds of the DOH budget in 1998-2006. With the adoption of the income retention policy, the budget share of retained hospitals contracted somewhat since 2003. However, the budget share of retained hospitals remains high and its 2006 level is still higher than that of 1998. The share of public health in the DOH budget initially went down from 24.7% in 1999 to a low of 7.6% in 2003 but has since experienced some expansion to 14.2% in 2006. However, the budget share of public health in 2006 is still lower than its 1998 level. Retained hospitals have consistently captured about two-thirds of the DOH budget in 1998-2006. With the adoption of the income retention policy, the budget share of retained hospitals contracted somewhat since 2003. However, the budget share of retained hospitals remains high and its 2006 level is still higher than that of 1998. The share of public health in the DOH budget initially went down from 24.7% in 1999 to a low of 7.6% in 2003 but has since experienced some expansion to 14.2% in 2006. However, the budget share of public health in 2006 is still lower than its 1998 level.

11. DOH Spending patterns and trends (2) The contraction in real per capita DOH spending on public health is dramatic. Its 2006 level (PhP 12) is just about a third of its 1998 level (PhP 34). In contrast, the reduction in real per capita DOH spending on tertiary care is more moderate, going down from P113 in 1998 to PhP P54 in 2006. The contraction in real per capita DOH spending on public health is dramatic. Its 2006 level (PhP 12) is just about a third of its 1998 level (PhP 34). In contrast, the reduction in real per capita DOH spending on tertiary care is more moderate, going down from P113 in 1998 to PhP P54 in 2006.

12. What needs to be done?

13. What needs to be done? (2)

14. Why liberate funds from hospitals? F1 Paper proposal: DOH to influence access, quality and cost of care in local markets by moving subsidies to regional facilities outside NCR F1 Paper proposal: DOH to influence access, quality and cost of care in local markets by moving subsidies to regional facilities outside NCR

15. Budget for service delivery – hospitals (1) National government subsidies to hospitals is skewed in favor of hospitals located in the NCR (41% of total DOH hospital budget in 2006) National government subsidies to hospitals is skewed in favor of hospitals located in the NCR (41% of total DOH hospital budget in 2006)

16. Budget for service delivery – hospitals (2) Capacity and willingness of retained hospitals to generate revenues appears to have been strengthened with the adoption of income retention policy in 2003. The ratio of hospital income to hospital MOOE in NCR went up from an average of about 20% in 1995-2000 to 60% in 2003 and 73% in 2004. Capacity and willingness of retained hospitals to generate revenues appears to have been strengthened with the adoption of income retention policy in 2003. The ratio of hospital income to hospital MOOE in NCR went up from an average of about 20% in 1995-2000 to 60% in 2003 and 73% in 2004.

17. However, considerable variation exists across hospitals as well as across regions. However, considerable variation exists across hospitals as well as across regions.

18. Budget for service delivery – hospitals (4) Also, the allocation of hospital budget tends not to take into consideration the capacity of the facility to generate revenues from its operations. ? The distribution of hospital budgets closely resembles the distribution of hospital income. Also, the allocation of hospital budget tends not to take into consideration the capacity of the facility to generate revenues from its operations. ? The distribution of hospital budgets closely resembles the distribution of hospital income.

19. Given this perspective , there is scope to reallocate resources away from retained hospitals. “Financing F1” paper proposes that retained hospitals contribute at least 5% of their MOOE allocations to support essential F1 programs in exchange for greater access to and more flexible use of user fees and PHIC reimbursements. Given this perspective , there is scope to reallocate resources from retained hospitals to public health, social health insurance and other F1 investments to improve sector governance. F1 Paper proposes that retained hospitals contribute at least 5% of their MOOE allocations to support essential F1 programs in exchange for greater access to and more flexible use of user fees and PHIC reimbursements. Based on the 2006 budget, a contribution equivalent to 5% of the MOOE allocations of retained hospitals will generate PhP 101 billion pesos. Prospectively, the DOH could impose a bigger contribution (say 10%) from retained hospitals. Care should, however, if exercised so that hospitals do not perceive that they are being taxed on the amount of revenues that they actually generate. Otherwise, perverse incentives could ensue. Also, the bigger contribution should be predicated on securing more funds for the premium contributions for the PHIC indigent program. Even as resources are shifted away from retained hospitals in aggregate, it is also critical that the remaining MOOE allocation for the hospital sector be used more efficiently. F1 paper suggests that part of the MOOE allocations to individual hospitals be conditioned on the proportion of surgical and special cases relative to their total caseload, another part be distributed in the basis of their performance of research and training, and still another portion on the basis of their ability to meet quality standards.Given this perspective , there is scope to reallocate resources from retained hospitals to public health, social health insurance and other F1 investments to improve sector governance. F1 Paper proposes that retained hospitals contribute at least 5% of their MOOE allocations to support essential F1 programs in exchange for greater access to and more flexible use of user fees and PHIC reimbursements. Based on the 2006 budget, a contribution equivalent to 5% of the MOOE allocations of retained hospitals will generate PhP 101 billion pesos. Prospectively, the DOH could impose a bigger contribution (say 10%) from retained hospitals. Care should, however, if exercised so that hospitals do not perceive that they are being taxed on the amount of revenues that they actually generate. Otherwise, perverse incentives could ensue. Also, the bigger contribution should be predicated on securing more funds for the premium contributions for the PHIC indigent program. Even as resources are shifted away from retained hospitals in aggregate, it is also critical that the remaining MOOE allocation for the hospital sector be used more efficiently. F1 paper suggests that part of the MOOE allocations to individual hospitals be conditioned on the proportion of surgical and special cases relative to their total caseload, another part be distributed in the basis of their performance of research and training, and still another portion on the basis of their ability to meet quality standards.

20. With greater cost recovery from the DOH’s regulatory services, there is scope for reallocating resources away from regulatory bureaus of the department. Sustainable revenue generation of regulatory agencies depends on their credibility to set standards, verify/ enforce compliance. For this to happen, critical investments to build capability in these agencies needed. Sustainable revenue generation depends on the credibility of these agencies to set standards, verify/ enforce compliance (DOH 2006). For this to happen, critical investments to build the capability of these agencies are needed. These agencies also need to cost their procedures so as to set their fees at appropriate levels. As with retained hospitals, F1 report proposes that DOH regulatory agencies contribute at least 5% of their MOOE allocations to support essential F1 programs. Sustainable revenue generation depends on the credibility of these agencies to set standards, verify/ enforce compliance (DOH 2006). For this to happen, critical investments to build the capability of these agencies are needed. These agencies also need to cost their procedures so as to set their fees at appropriate levels. As with retained hospitals, F1 report proposes that DOH regulatory agencies contribute at least 5% of their MOOE allocations to support essential F1 programs.

21. Revenues of regulatory agencies under the DOH come from fees collected for licensing and testing purposes. DOH regulatory agencies have also shown increasing ability to recover cost. Revenues of regulatory agencies equal to 108% of MOOE budget of BFAD, 111% of MOOE budget of BHFS and 133% of OOE budget of BQIHS. Sustainable revenue generation depends on the credibility of these agencies to set standards, verify/ enforce compliance (DOH 2006). For this to happen, critical investments to build the capability of these agencies are needed. These agencies also need to cost their procedures so as to set their fees at appropriate levels. As with retained hospitals, F1 report proposes that DOH regulatory agencies contribute at least 5% of their MOOE allocations to support essential F1 programs. Revenues of regulatory agencies under the DOH come from fees collected for licensing and testing purposes. DOH regulatory agencies have also shown increasing ability to recover cost. Revenues of regulatory agencies equal to 108% of MOOE budget of BFAD, 111% of MOOE budget of BHFS and 133% of OOE budget of BQIHS. Sustainable revenue generation depends on the credibility of these agencies to set standards, verify/ enforce compliance (DOH 2006). For this to happen, critical investments to build the capability of these agencies are needed. These agencies also need to cost their procedures so as to set their fees at appropriate levels. As with retained hospitals, F1 report proposes that DOH regulatory agencies contribute at least 5% of their MOOE allocations to support essential F1 programs.

23. Case 1a. Reallocation from hospitals and regulatory bureaus equal to 5% of MOOE in 2007 and 10% of MOOE in 2008-2010; order of priority – FAPs and public health; no additional allocation for premium subsidies for health insurance of indigents (Table 17). Under this scenario, the amount of resources released from the hospital and regulatory sub-sectors is just about enough to fully cover the requirements of the FAPs in 2007 and 2008. In 2009-2010, additional resources are projected to be released from the FAPs sub-sector as well. However, in these years, only about two-thirds of the resource gap in public health will be covered even with the additional resources being “liberated” from FAPs. Case 1a. Reallocation from hospitals and regulatory bureaus equal to 5% of MOOE in 2007 and 10% of MOOE in 2008-2010; order of priority – FAPs and public health; no additional allocation for premium subsidies for health insurance of indigents (Table 17). Under this scenario, the amount of resources released from the hospital and regulatory sub-sectors is just about enough to fully cover the requirements of the FAPs in 2007 and 2008. In 2009-2010, additional resources are projected to be released from the FAPs sub-sector as well. However, in these years, only about two-thirds of the resource gap in public health will be covered even with the additional resources being “liberated” from FAPs.

25. Case 1b. reallocation from hospitals and regulatory bureaus equal to 5% of MOOE in 2007 and 10% of MOOE in 2008-2010; order of priority – public health and FAPs; no additional allocation for premium subsidies for health insurance of indigents (Table 18). Under this scenario, the proportion of the resource gap in public health that will be covered from resource allocation within the DOH sector is projected to rise from 24% in 2007, 46% in 2008 and 65% in 2009-2010. However, the gaps in the FAPs cover in will not be addressed in 2007-2008.Case 1b. reallocation from hospitals and regulatory bureaus equal to 5% of MOOE in 2007 and 10% of MOOE in 2008-2010; order of priority – public health and FAPs; no additional allocation for premium subsidies for health insurance of indigents (Table 18). Under this scenario, the proportion of the resource gap in public health that will be covered from resource allocation within the DOH sector is projected to rise from 24% in 2007, 46% in 2008 and 65% in 2009-2010. However, the gaps in the FAPs cover in will not be addressed in 2007-2008.

27. Case 2a. It is assumed that there is reallocation from retained hospitals and regulatory agencies equal to 5% of their MOOE in 2007 and 10% in 2008-2010. At the same time, the health budget allowed to grow so as provide full coverage for FAPs; to increase support for public health so as to reduce gap initially by 50% in 2007, 65% in 2008 and 100% in 2009-2010; to increase support for subsidies to indigent premium from 25% of gap in 2008; 50% of gap in 2009-2010 (Table 19). Under this scenario, the implied growth rate in the DOH budget is equal to 2.4% in 2007 but is expected to stay at that level in 2008, and to decline somewhat in 2009-2010. On the other hand, national government spending on premium subsidies for indigents is projected to stay at the 2006 level in 2007 but to grow by 3.3% in 2008 and 1.6% in 2009. Case 2a. It is assumed that there is reallocation from retained hospitals and regulatory agencies equal to 5% of their MOOE in 2007 and 10% in 2008-2010. At the same time, the health budget allowed to grow so as provide full coverage for FAPs; to increase support for public health so as to reduce gap initially by 50% in 2007, 65% in 2008 and 100% in 2009-2010; to increase support for subsidies to indigent premium from 25% of gap in 2008; 50% of gap in 2009-2010 (Table 19). Under this scenario, the implied growth rate in the DOH budget is equal to 2.4% in 2007 but is expected to stay at that level in 2008, and to decline somewhat in 2009-2010. On the other hand, national government spending on premium subsidies for indigents is projected to stay at the 2006 level in 2007 but to grow by 3.3% in 2008 and 1.6% in 2009.

29. Case 2b. It is assumed that there is reallocation from retained hospitals and regulatory agencies equal to 5% of their MOOE in 2007 and 10% in 2008-2010. At the same time, the health budget allowed to grow so as provide full coverage for FAPs; to increase support for public health so as to reduce gap by 100% in 2007-2010; to increase support for subsidies to indigent premium initially from 50% of gap in 2008 and by 100% of gap in 2009-2010 (Table 20). Under this scenario, the DOH budget is projected to grow by 4.8% in 2007 but to decline by 0.7% in 2008 and 2.2% in 2009. On the other hand, national government spending on premium subsidies for indigents is projected to stay at the 2006 level in 2007 but to grow by 6.7% in 2008 and 3.1% in 2009. Case 2b. It is assumed that there is reallocation from retained hospitals and regulatory agencies equal to 5% of their MOOE in 2007 and 10% in 2008-2010. At the same time, the health budget allowed to grow so as provide full coverage for FAPs; to increase support for public health so as to reduce gap by 100% in 2007-2010; to increase support for subsidies to indigent premium initially from 50% of gap in 2008 and by 100% of gap in 2009-2010 (Table 20). Under this scenario, the DOH budget is projected to grow by 4.8% in 2007 but to decline by 0.7% in 2008 and 2.2% in 2009. On the other hand, national government spending on premium subsidies for indigents is projected to stay at the 2006 level in 2007 but to grow by 6.7% in 2008 and 3.1% in 2009.