Budget matters for health: key formulation and classification issues- WHO

Authors:
Helene Barroy, Elina Dale, Susan Sparkes, Joe Kutzin
This policy brief aims to raise awareness on the role of public budgeting – specifically aspects of budget formulation – for non-PFM specialists working in health. As part of an overall WHO programme of work on budgeting in health, it helps to clarify the characteristics and implications of various budgeting approaches for the health sector.

KEY MESSAGE 

• Robust public budgeting in the health sector is a necessary condition to enable the effective implementation of health financing reforms towards universal health coverage.
• Moving from input-based budgeting to health budgets that are formulated and executed on the basis of goal-oriented programmes can help build stronger linkages between budget allocations and sector priorities. This can also enable the implementation of strategic purchasing and incentivize accountability for sector performance.
• While budget classification reforms relate to overall fiscal management, health ministries have a critical role in defining the scope, content and coverage of budgetary programmes as a unique way to better align allocations with sector needs.
• The process, design and implementation of programme-based budgeting reforms in the health sector have varied greatly both between and within countries. Country budgets vary in terms of the relevance of budgetary programmes definition, their scope and structure, as well as the quality of performance monitoring frameworks.
• Despite past reform efforts, many countries plan health budgets by programmes but continue to spend by inputs. Several countries use hybrid or dual budget classification systems that mix health inputs, programmes and other classification methods, making it more complex to pool resources, spend and strategically purchase health services.
• Institutionalizing budget formulation changes alone is not enough. It should be coordinated with other elements of overall public financial management reform (e.g. multi-year budgeting, cash management, financial information and reporting systems) to ensure that changes in budget formulation are consistent with the rest of the financial management system.
• The interplay between budget classification systems and provider contracting and payment arrangements is a key issue from a health financing perspective. A change in budget formulation is likely to be one of the necessary conditions for implementing strategic purchasing of health services.
• The introduction of programme budgeting should be sequenced appropriately in the health sector, especially where basic public financial management foundations are not in place to safeguard against the misuse of public resources in the sector.

Implementation of budget classification reform in health: 10 key considerations for health ministries

1. Ensure good understanding and clear definition of reform motivation and expectations for the sector (e.g. better alignment with sector priorities, more flexibility in spending, capacity to pool resources and purchase services from the budget).
2. Equip health authorities with the needed capacity and skills to shift from classic planning by inputs to programming by outputs across the different levels of administration.
3. Determine priority-setting mechanisms to enable translation of national health priorities into budgetary programmes.
4. Ensure continuous coordination mechanisms between health and finance, and within health ministries, to reduce inconsistency in programming and secure alignment between reform goals and implementation.
5. Sequence implementation of programme-based budgeting reform and ensure that existing rules are known and used by health authorities, even during a transitory phase.
6. Consider from the start the implications of programme-based budgeting for strategic purchasing, making sure that programmatic classification simplifies, and makes more flexible, the choice of provider payment mechanisms.
7. Ensure that the reform provides sufficient flexibility to programme directors to manage funds according to an output logic, not ending with only a presentational change of budget documents.
8. Pay attention to the design of the performance framework to allow relevant monitoring and evaluation of expenditure and be able to inform future allocation decisions
9. Tailor financial information systems to the needs of performance monitoring without overloading health authorities with the tracking of unnecessary and fragmented information.
10. Connect with and integrate programme-based budgeting reforms with other aspects of PFM agendas (e.g. by revisiting the role of a multi-year spending framework); the effectiveness and consistency of the reform depends on the overall strength of the PFM underlying system.

Barroy H, Dale E, Sparkes S, Kutzin J: Budget matters for health: key formulation and classification issues. Geneva: World Health Organization; 2018. Licence: CC BY-NC-SA 3.0 IGO.

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