KENYA MEDICAL TRAINING COLLEGE HSM II: FINANCIAL RESOURCE MANAGEMENT

BY AGGREY MAKOKHA

HEALTH SYSTEMS SPECIALIST

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”

Course objectives

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We will look at the following:Sources of health financingFinancial accounting systems and

mechanismsAccounting documentsTypes of budgetsFacility improvement fundPayment mechanisms in health financing

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.

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.

Changing government role in health care

Health is considered a public goodGovernment needs to actively

participate to avoid market failuresThe Parliament, treasury , the

controller and auditor general play a major role in public financial management.

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

Contd…iii.) The expenditure programs are soundiv.) The budget is implemented as it was

approved in parliament v.) the budgetary items are in line with the

existing legislationii.) The appropriations match the needs of the

people

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

.

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

EXTRA PARLIAMENTARY OVERSIGHT INSTITUTIONSThe 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

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.

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

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…….

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.

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.

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.

5. Donor FundingExternal 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.

 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.

FINANCIAL ACCOUNTING SYSTEMS

We will look at the following:ImprestVouchersPerdiemFacility improvement fundSalaryAllowancesVote books

IMPRESTIs 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.

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.

Voucher systemThis 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.

SALARYAgreed 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.

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.

Advantages and disadvantages

Cost containmentEquitable provisionEasy administrationDisadvantages:Low productivityLow quality of care or service deliveryLow morale of the providers

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:

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.

VOTE BOOKIs 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.

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 financesEnsure that sufficient funds are available for

future payments.

Per diemDaily 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.

Contd…Unit of payment is per day for different

hospital departments. Financial risk for provider is low and for payer it is high.

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

Userpayments

For-profit or

Non-profit private

insurance

Medical savings

voluntary or compulsory

Social contributions

employers employees

Methods of public financing Methods of private financing

Provider payment methods/mechanisms

Fee for serviceLine item Per diemPer capitaCase based

Fee for serviceFee 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

Per capitaPer 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.

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

Case basedCase-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

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.

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 commercial enterprises.

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.

principles of a good budgetA 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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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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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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Types of budgetsAnnual BudgetsAn annual budget is a budget that is developed

for a year long period of time. An annualbudget is often the organization's yearly budget

that they would publish in summary form intheir 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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contd...Operational BudgetAn operational budget can also be called an

organisational budget. This type of budgethighlights 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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contd...Program BudgetA program budget highlights the income and

expenditure that is incurred for the development and implementation of a specific program.

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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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QUESTIONS????

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