Health financing and public financial management in a decentralized context

The World Health Organization’s Department of Health Systems Governance and Financing and ThinkWell launched a learning collaboration in 2019 to explore the interplay between decentralization, public financial management (PFM) and the health financing, which aimed to:

  1. analyze the implications of decentralization for health financing, with a focus on public health expenditure; and
  2. explore how decentralization has shaped PFM processes in the health sector and identify challenges arising from the disconnect between decentralization and PFM reforms.

The collaboration produced case studies on seven countries—Burkina Faso, Indonesia, Kenya, Mozambique, Nigeria, the Philippines, and Uganda—and two synthesis reports based on the country cases and other publications.

The first report summarizes the implications of decentralization for health financing, with a focus on health spending at the subnational level. The results suggest that, in all cases, subnational governments largely depend on central government transfers to finance their budgets. Central governments will likely need to increase public spending on health as part of UHC strategies. Decentralization contributes to the fragmentation of the pooling function, creating obstacles to the equitable distribution of resources among subnational units. There is therefore a strong need for fiscal equalization schemes, which must take into account multiple criteria and needs. Finally, the discretion and ability of subnational governments to function as strategic purchasers of health services is limited. Streamlining responsibilities for health financing and service delivery can help reduce duplication and fragmentation as well as clarify purchasing roles. The report describes these policy options in more detail and suggests areas for future research.

The second report describes how decentralization has shaped PFM processes in health, identifies key challenges for the health sector emerging from the disconnect between decentralization and PFM reforms, and offers policy lessons to overcome. these obstacles. Decentralization has complicated health budgeting. Disparate budget structures hinder collaboration between levels of government, contributing to disjointed or duplicative sector plans and weak budget prioritization for health. Decentralization does not necessarily increase the management or spending autonomy of service providers. While sub-national entities exercise new decision-making powers and fiscal controls, these have not been systematically extended to the providers themselves and, more often than not, institutions cannot respond flexibly to changing needs. Due to lagging PFM reforms, decentralization has failed to deliver on its promise of greater transparency and accountability for public health spending. The persistence of input-based budget structures at the subnational level also strengthens accountability for inputs rather than outputs or outcomes.