Chapter 21: Managing Health Financing

September 2023
Outline of presentation

 Introduction
 Learning Objectives
 Operational standards
 Implementation guidance

• Strategic Planning and Budgeting

• Overview of Health Financing Reforms
• Financial Control
 Summary
1. Introduction

 Health Financing Functions

Health financing is one of the six health system building
blocks and deals with

Revenue collection
pooling of
resources
Purchasing of
health services
1. Introduction …
 Health Financing Reforms in Ethiopia
 The Government of Ethiopia approved the HCF strategy
to reform its financing for health.
The goals of the reforms
• Resource mobilization: raise additional resource to the health
sector
• Efficiency: enhance efficient allocation and utilization of resources
• Quality & coverage: improve access to quality health services;
• Equity and access: enhance health service access to the poor
• Sustainability: promote sustainable domestic resource mobilization
in financing health
1. Introduction …

 The components of health financing reforms are:

 Health Facility Governing Board
 Revenue retention and utilization
 Systematizing fee-waiver
 Establishing Private Wing in Public hospitals
 Outsourcing of services
 Exempted Health Services
 Fee setting and revision
 Health Insurance
2. Learning objectives


By the end of this chapter, the trainees will be able to :-

• Recognize Kore Functions Health Financing

• Explain the rationale and objectives of the HCF reforms in

Ethiopia

• Explain operational standards for managing health

financing

• Present the objectives and implementation procedure of

HCF reform components

3. Operational Standards

1. The hospital has a functional finance structure with trained

finance personnel and technology.

2. The hospital has a strategic and annual financial plan in

alignment with the hospital’s overall plan.

3. The hospital increases retained revenue collection and its

allocation for quality improvement.

4. The hospital establishes systems and practices for

improving its resource utilization.
3. Operational Standards …

5. The hospital has put in place a reimbursement mechanism

for HI and other services provided on credit basis.

6. The hospital has established a system to implement

outsourcing of services

7. The hospital has opened up a private wing in accordance

with the provisions of the federal or regional regulation

8. The hospital fully complies with the government finance rules

and regulations
4. Implementation Guide

 Strategic Planning and budgeting

 Hospitals must have financial strategic and operation
plan in alignment with the overall development plan
of the hospital
 The hospitals’ plan must be evidence-based and need
to take into account the following considerations:
• Make expenditure projection by identifying
expenditures financed from treasury RRU
community priority needs, etc.
• National/regional health sector plans and
initiatives, reforms, etc.
• Map resources to avoid duplications
4. Implementation Guide…

 Strategic Planning and budgeting …

 A budget is an estimate of the maximum level of
resources available to spend to achieve desired
outcomes.
 The Ethiopian government has introduced fiscal
decentralization together with basic planning and
budgeting procedures to ensure that financial
resources at facility level are spent:
• To provide quality services for the community
• To ensure optimal resources use with proper
accountability
4. Implementation Guide …

 The Three Stages of the Budget Cycle

• Budget planning
• Budget preparation and request
• Procedures for budget approval and to complete the
budget cycle
4. Implementation Guide…

 The Three Stages of the Budget …

Step 1: Budget Planning
• Preparation of work plans
• Review of work plans
• Estimation of revenue
• Estimation of budget from the government source
• Budget call
4. Implementation Guide…

 The Three Stages of the Budget …

Step 2: Budget Preparation
 The health facilities estimate budgetary resources from
various sources
• Block grants from government sources (treasury)
• Donation and assistance from donors
• Retained revenue (internal revenue)
 Allocate the resource to recurrent and capital expenditures.
 This is submitted together with the annual plan.
 Note: Expenditure from retained revenue should be
budgeted separately from expenditures made from other
sources of finance.
4. Implementation Guide…

 The Three Stages of the Budget …

Stage 3: Budget Approval Procedures
• Budget hearing and recommendation
• Budget consolidation
• Budget approval
• Budget appropriation
• Budget notification
• Budget adjustment (transfers and supplementary
budget)
• Budget execution
• Budget monitoring and evaluation
4. Implementation Guide…

 Overview of HCF reform components: rationale and

objectives
Revenue Retention and Utilization (RRU)
• RRU is the discretion given to HFs to retain and utilize facility
revenue for quality improvement
 Why revenue retention & utilization?
• Foundation for all HF reform agenda
• Facilities' ownership to control leakage
• Generates resource for quality improvements
 Revenue retention:
• Is additional to budget allocated by government
• Should be invested strictly on quality improving activities
• Should be appropriated before use
4. Implementation Guide…
Sources of Facility Revenue include:
• Block budget appropriated by the government
• Fees collected from health care and diagnostic services
• Sale of drugs and medical supplies
• Revenue collected from third parties.
• Fees collected from consultancy, trainings and research activities

• Income from non-medical services and goods

• Aid in cash and in kind
4. Implementation Guide…

 Rationale for RRU

• To strengthen the financial capacity of health facility,

• To contribute to domestic resource mobilization for the health
sector
• To improve quality of health services
• To enhance health facilities responsiveness to the community’s
prioritized health needs

 RRU should only be allocated on POSITVE LISTs that may be

categorized into three categories (1st level. 2nd level & 3rd level)
based on its level of importance to quality improvement
4. Implementation Guide…
 Fee waiver System
 Fee waiver is a right conferred to a household or an
individual to get health services from the public hospital
free of charge at the point of service delivery.
 The rationale for providing fee waiver service lies in

• financial risk protection for the poor

• Ensuring equity in access
• Increasing the financial capacity of health facilities
4. Implementation Guide…
 Standardizing Exempted Health Services

• Is a package of services provided for citizens

irrespective of capacity to pay.
 These services are services of high public health
importance
4. Implementation Guide…
 List of Exempted Health Services include:
– Diagnosis, follow-up and supply of drugs for Tuberculosis;
– Pre-natal, delivery, post- natal, and family planning services
– Immunization
– Prevention of HIV/AIDS transfer from mother to child;
– Providing Voluntary Testing and Counseling service of
HIV/AIDS;
– Diagnosis and treatment of Leprosy; Epidemic control and
follow-up
– Diagnosis, treatment and follow up of fistula case
– Rape case related diagnosis, treatment and follow up
services
– Diagnosis, treatment and follow up of safe abortion
4. Implementation Guide…
 Outsourcing
 Is the agreement between a health facility as a purchaser and
a third –party provider of services as a vendor
 Health facilities can out source non clinical services to third
parties so that they can focus on their core business of
providing health services.
 Why outsourcing?
 To help health workforce to focus on core competencies
 To improved Quality of Services.
 To reduce costs.
 To gain Efficiency and effectiveness.
 involve expertise from outside of the heath sector
4. Implementation Guide…
Hospital should conduct feasibility study before
outsourcing
• Key elements in the feasibility study include:
• quality improvement to be gained
• Direct cost (example, staff salary, supplies consumed
directly by a specific health facility ward),
• Indirect cost( reagents, detergents, supplies and
temporary labor),
• Variable cost (housekeeping, space, electricity, and water)
and
• Fixed cost ( equipment and allocated indirect costs of
administration)
• Social costs (Adverse social impact on the affected staff)
4. Implementation Guide…
 Establishment of private wing in public hospitals
• PW is an official arrangement where medical services are
provided on a fee-for-service basis during holidays and off-
working hours
• It allow public hospitals to open a private like wing/ward to
allow specialists to work & earn additional income
• Envisaged to increase motivation and reduce attrition of
health workers.
• It also provides an alternative choice of care
4. Implementation Guide…
 Basic Considerations:
• Assessment should be conducted and the proposal should be
approved by governing board
• Ensure that opening of the PW will not adversely affect services
regular hospital services
• Ensure that user fees don’t pose burden on clients; assess the ability
to pay of the service users;
• Fee rates fall between the public and the private user fee rates,
• Make sure user fees can generate adequate revenue for paying
reasonably “fair” additional income for health professionals;
• Ensure that user fees are set in line with the HCF legal framework,
and they are approved by the HFGB.
4. Implementation Guide…
 Health Insurance
 HI is a formal arrangement where insured persons are protected
from the cost of medical services that are covered by the
insurance plan;
 HI provides for the unforeseen medical bills that would
otherwise be a burden on individuals/HHs,
 Rationale for health insurance

• Accelerate progress towards UHC

• Elimination of catastrophic health expenditure
• Improves utilization of health services
• Creates risk pooling and improve access
• Improves the quality of healthcare services
4. Implementation Guide…

 Rationale for health insurance

• To improve equity in health services

• To strengthen community participation
• To generate additional revenue to the health sector
4. Implementation Guide…

 Types of Insurance

• SHI: a mandatory, non-for-profit Health Insurance program for

formal sector employees and financed by earmarked
payroll/pension contributions (from employees and employers).
• CBHI: Not-for-profit insurance scheme aimed primarily at the
informal sector and formed on the basis of a collective pooling
of health risks, and in which the members participate in its
management.

• Private HI: refers to insurance schemes that are financed

through individual (group) private health premiums, which are
often voluntary, and risk rated and funds managed by ‘For-profit’
insurance companies
4. Implementation Guide…
 Financial Control-Financial Audit

 The Hospital’s financial activities must fully comply to

the government finance rules and regulations

 Audit is one of the mechanisms to check whether

financial rules are met or not

 It is the examination of the financial transactions of an

organization & is done by someone independent of the

organization.
4. Implementation Guide…

 Each hospital should appoint an Internal Auditor

 External audit is done by the Auditor General (Federal/
regional Audit office, Finance Bureau and its structures),

 The hospital governing board & management committee

should take steps based on audit reports.
4. Implementation Guide…
 Inventory Management (Inventory Control) System
 An inventory management is a system that informs the
store manager;
 How much stock is available
 When to order more stock
 When to issue
 How much to order or issue, and
 How to maintain an appropriate stock
4. Implementation Guide…

 Procurement of Fixed Asset.

A, Procurement Plan & Procurement Policy
 Each hospital should prepare a 5 year plan for the
purchase of major capital. A detailed annual
procurement plan should be prepared showing the
procurement for the budget year.
 All hospitals should have a procurement policy
4. Implementation Guide…

B) Considerations for procurement

 When fixed assets, and in particular medical
equipment is purchased the following considerations
should be made:
 Consider:
 Environmental factors such as power and water
supply, altitude, humidity, heat, dust etc
 Physical space required and interface with
required utilities
4. Implementation Guide…

C) Methods of procurement
 Federal Legislation stipulates that the preferred
method of procurement is ‘open bidding’.
 Other options that may be considered when open
bidding is not suitable include:
 Request for proposals
 Two stage tendering
 Restricted tendering
 Request for quotation
 Direct procurement
5. Summary
• The key Health Financing Functions are raising
revenue , pooling, and purchasing of health services
• The health financing reforms affect progress towards
UHC.
• The Ethiopian health financing reforms are designed to
achieve set of policy objectives.
• Revenue Retention and utilization is additive to the
government treasury budget and must be used to
improve quality of health services;
• Public hospitals must fully comply to the government
financial rules and regulations; be transparent and
accountable in the use of resources.
Thank You!