Bridging the Gap Between the Ministries of Finance and Health in Decentralized Health Care Systems —A Comparison of Nigeria and Kenya
By Daniel Cotlear, Gafar Alawode, and Stephen Muchiri
Nigeria and Kenya have found a way to harmonize the work of national-level ministries in each country’s mission to decentralize and enhance their healthcare systems. The paths taken by Nigeria and Kenya reflect their unique circumstances, but their broad strategies offer valuable guidance to the majority of African countries decentralizing health services.
Decentralization: One Goal, Many Players
Improved health outcomes require action involving many participants and sectors. The coordination of many participants is one of the challenges of multisectoral action, and this coordination is especially challenging in the context of decentralized healthcare. Learning about these challenges is important as many low- and middle-income countries have followed this path — in Africa, alone, a survey of 46 countries found that 37 of them have decentralized healthcare functions.
One of the tools used for the coordination of multisectoral action is financial incentives. In a decentralized context, there is often tension between the Ministry of Finance and the Ministry of Health regarding what rules of public financial management (PFM) should be applied. The need to align the preferences of ministries of finance, who define general rules for public finances, with the needs of the health sector has been recognized for a long time. Common areas of disagreement include earmarking revenues, formula-based budget allocations, output-based provider payments, and greater autonomy of healthcare providers. A WHO review of some of these areas of disagreement concluded that such alignment often requires that both sides accept to operate under rules that are not their initial preference. Here we look at the solutions to common challenges agreed upon by the two ministries deriving from the decentralization of healthcare in Nigeria and Kenya.
“Donors are concerned not only with the low levels of spending in healthcare but also with the low share of health spending going to core programs”
Nigeria: Financing of a Healthcare Fund Shows Promise
In Nigeria, two national initiatives are attempting to align the interests of the different agencies involved in strengthening the provision of basic healthcare. The first initiative, “Primary Health Care under one Roof,” was launched a decade ago to make responsibilities of the different agencies explicit, to negotiate solutions for specific inconsistencies and bottlenecks and later, to monitor the quality of implementation with the use of balanced scorecards.
The second initiative is the Basic Health Care Provision Fund (BHCPF). Created by law in 2014, the fund is financed by the federal government for use by state and local governments to finance the enrollment of underprivileged populations in state insurance schemes that provide a basic package of health services. The fund accomplishes four things: it increases funding for health care; it prioritizes a set of essential health interventions; it aims to improve access for underprivileged populations; and mandates a statutory transfer, overcoming a problem that is common in many developing countries, where funds for health are often budgeted but are not disbursed.
The Ministry of Finance has also allowed the creation of accounts for petty cash at the facility level. Community groups, created to facilitate enrollment into the insurance schemes and to raise awareness over the program, were given oversight over the facility-level accounts giving the treasury a greater comfort level in relation to these accounts.
While it is still too early to judge the impact of these reforms on health outcomes, the reforms are considered a step forward in terms of process.
Kenya: Managing Funds at the County Level
Kenya’s health sector has a very different history than Nigeria’s. The new constitution of 2010 mandated devolution of healthcare responsibility to the county governments and the Public Financial Management Act of 2012 introduced tight financial control measures, regulated by a centralized information system managed by the Treasury. Devolution of health functions to counties took place after 2013 with public spending in health transferred to the counties. Following the constitutional mandate and the new PFM system, funds transferred to the county could not be earmarked for health spending. The share of the government budget allocated to health was greatly reduced in the years immediately after devolution.
To restore priority for health care in county budgets, in 2019 a Universal Health Care conditional grant was established by the central government; to be eligible, counties must direct at least 30 percent of their budget to healthcare.
During decentralization, clinic managers lost an important tool that had allowed them to improve health service delivery; the direct transfer of funds to facility-level accounts was eliminated and management of cash was centralized at the county level. To give managers the capacity to manage, a few counties have approved county-level legislation that now allows the reopening of facility-level petty cash accounts. Some counties have allowed donors to open special purpose accounts to which funds are wired, ultimately transferred to health facilities. However, legislation to do this nationally has been unsuccessfully awaiting approval by Parliament.
Donors are concerned not only with the low levels of spending in healthcare but also with the low share of health spending going to core programs (immunization, HIV, tuberculosis, malaria, and family planning). As a temporary solution, donors support systems by which the procurement of all commodities for these programs is done at the central level and commodities are distributed in-kind to the counties.
What does this comparison teach us about the role of public financial management in multisectoral action?
In both countries, the architects of decentralization initially avoided earmarking funds for health. The idea was that the states and counties would receive a general transfer and would decide what share of that would be allocated to healthcare. Eventually, in both countries, this situation led to underfinancing of essential healthcare services; central government had to find new funds to incentivize local governments to spend in health. In Nigeria, this is done using the Basic Health Care Provision Fund and in Kenya through the universal healthcare conditional grant.
Incentivize subnational governments to increase spending
Each country has chosen a different path to make those transfers. In Nigeria, the path involves creation of “state health insurance schemes,” with the requirement that the insured be identified and enrolled and that a benefit package be made explicit. In Kenya, a UHC conditional grant is offered to counties without involving insurance. At the same time, the National Hospital Insurance Fund has opened a new program (Linda Mama) that extends insurance coverage to all pregnant women.
Provide managers of clinics with some autonomy
Both countries have struggled with the need to give autonomy to clinic managers to make decisions over part of their budget. In Kenya, this autonomy already existed and was lost during devolution. In both countries, rigid PFM rules have required prolonged negotiations and eventually both countries are converging to solutions that involve community oversight of cash use by managers.
Prioritize essential services for vulnerable populations
In both countries there is a sense that beyond the insufficient funding of healthcare, there is also an issue of insufficient funds for core programs within health. In Nigeria, a partial response is the use of an explicit basic package that includes the core programs. In both countries a floor is set for the core programs by in-kind transfers of commodities usually financed by donors.
A coordinated approach is needed to achieve an efficient and effective use of public funds and fiscally sustainable progress toward universal health coverage in a decentralized context. Kenya and Nigeria have chosen different paths in relation to the use of insurance. However, they are both using similar solutions to incentivize subnational governments to increase spending in health, prioritize essential services for vulnerable populations, and provide managers of clinics with some autonomy to manage.
Daniel Cotlear is a health director at Palladium. Gafar Alawode and Stephen Muchiri, also with Palladium, are country directors for the USAID-funded Health Policy Plus programs in Nigeria and Kenya, respectively.