Health Reform and Drug Financing. Selected Topics - Health Economics and Drugs Series, No. 006
(1998; 49 pages) [French] [Spanish]
Table of Contents
View the documentAcknowledgements
View the documentExecutive summary
Open this folder and view contents1. Introduction
Close this folder2. Financing reforms
View the document2.1 Public financing though general revenues
View the document2.2 Health insurance
View the document2.3 User charges
View the document2.4 Voluntary and other local financing
View the document2.5 Donor financing and drug donations
View the document2.6 Development loans
Open this folder and view contents3. Affordability and efficiency
Open this folder and view contents4. Organizational reforms
View the documentConclusions
View the documentReferences
View the documentBack Cover
 

2.1 Public financing though general revenues

Governments in virtually every country in the world play a role in financing health services and pharmaceuticals. This role reflects in part the recognition by society that health is a fundamental right to which all sections of the population should have access. It also reflects the realization that private markets do not necessarily achieve equity nor sustain the precept of solidarity.

Though some public financing for health and essential drugs is necessary, the level of financing varies dramatically among regions and among countries. Public financing may be through national and local government allocations or through social security or health insurance schemes (the latter are discussed in section 2.2).

The provision of drugs through direct central financing can be advantageous as it may allow better targeting of drug supplies to those most in need and can give governments greater leverage in controlling drug quality. Economies of scale may also be achieved, although these can also be achieved through governments acting as purchasing agents. Box 1 illustrates the role of public drug expenditures in Bhutan and Indonesia.

Box 1. Role of public drug expenditures in Bhutan and Indonesia

Bhutan

• It is unusual for a developing country in that it provides most of its drugs (90%) through the public sector.

• Public drug expenditure is roughly US$1 per capita annually, 70% of which is covered directly by the central government allocations (=63% of total pharmaceutical spending) and the remaining 30% is covered by multilateral and bilateral donors.

• An essential drugs list exists (326 dosage forms categorized by levels of use in 1995) and is used in the purchase of drugs through international tenders.

Indonesia

• The public sector contributes one-quarter of the US$ 3.75 per capita which is spent annually for pharmaceuticals by both public and private sources. Of this public contribution, two-thirds comes from central government allocations (=16.7% of total pharmaceutical spending), with the remaining contributions coming from civil servant health insurance schemes, provincial and district budgets, and donors’ vertical programmes.

• The central allocation for drugs is determined each year on a per capita basis (US$ 0.50 in 1990) using official population figures which set provincial and district budgets.

• Districts place their orders for drugs after being notified, according to a schedule, of their budgets, and of prices for drugs on the national essential drugs list. Drugs are delivered to district warehouses by both public and private supply channels.

What determines public spending on health and drugs? In practice, actual per capita expenditures are determined by a combination of factors including: political will; national economic output (GNP); the share of GNP collected in taxes as government revenue; the share of government spending devoted to health; the existence of publicly managed health insurance coverage; the share of health spending devoted to recurrent operating costs versus capital development costs; and the share of health spending devoted to pharmaceuticals. Figure 1 illustrates several of these factors for two low-income countries, one with a high commitment to health and essential drugs spending and one with low commitment.


Figure 1. Public pharmaceutical expenditures in low and high commitment countries

Public health and pharmaceutical expenditures reflect both economic conditions and national commitment

Actual regional differences in levels of total government expenditures and public support for health are shown in Table 3. In the established market economies and transitional economies, central government expenditures total over 40% of GNP, while the median for government expenditures in other regions is roughly 20% to 30% of GNP. Health generally receives less than half the share of government expenditures in developing countries (1.6% to 7%) than it does in the established market economies (12.5%).

The combined effect of lower total government revenue and lower allocations to health is that public spending on health in developing countries, as a share of national output, is one-quarter to one-half that of established market economies. In terms of actual per capita expenditures, difference in public health spending is even greater.

Table 3. Total government expenditures and health expenditures


Total government expenditures as % GNP (median)

Health as % of total government expenditures (median)

Public health expenditures as % GNP (mean)

Established market economies

42.5

12.5

5.9

Middle Eastern Crescent

33.2

4.3

2.6

Transitional economies

55.6

4.8

3.2

Latin America and Caribbean

17.1

6.7

2.9

Asia and Islands*

19.9

4.7

1.7

Sub-Saharan Africa

29.7

7.0

1.6

India

17.5

1.6

1.2

China

---

---

2.1

Sources: Summarized in Ref. [46], which provides explanatory notes. Original source for central government expenditures is Ref. [50]. Public health expenditures from Ref. [25].

* except China and India.

How do differences in health and drug financing appear at the national level? Data on total public health and drug expenditures for 11 countries are shown in Table 4. Total public health expenditures are consistent with regional figures listed above, but vary greatly among countries. But within the health sector, the share of budget devoted to drugs also varies - from 4.5% in Chad and 5.6% in Thailand, to 20.0% in Vietnam and 36.1% in Zimbabwe.

The combined effects of lower national output, government spending as a share of GNP, and decisions about public spending on health and drugs, is that per capita drug expenditures vary greatly among the 11 countries. Governments in Chad, Guinea, India (Andhra Pradesh), Mali, and Vietnam all spend less than $0.50 per capita on drugs. Sri Lanka, a poor country, still manages to spend US$1.34 on drugs.

Table 4. Public health and drug expenditures for selected countries


Total public health expenditures

Total public drug expenditures


as % GNP

per capita (US$)

as % health budget

per capita (US$)

Bulgaria

3.9%

44.76

18.4%

8.24

Zimbabwe

2.8%

12.43

36.1%

4.49

Colombia

1.5%

20.03

18.0%

3.61

Thailand

2.0%

33.65

5.6%

1.89

Sri Lanka

1.5%

8.58

15.6%

1.34

Philippines

0.5%

4.53

13.3%

0.60

Vietnam

1.1%

2.32

20.0%

0.46

Guinea

0.4%

1.73

15.8%

0.27

Mali

0.4%

0.74

18.8%

0.14

India (Andhra Pradesh)

3.2%

1.93

6.8%

0.13

Chad

0.6%

1.06

4.5%

0.05

Source: Based on data presented in Ref. [42]. Data are from the most recent year available, generally early 1990s.

How do governments determine the level of public spending on essential drugs? It is clear that several factors influence public spending on drugs and that these factors result in substantial variations among countries in public spending on essential drugs.

Within the government budget process of different countries, arguments for expenditures on essential drugs have been based on projected health impact, impact on health care utilization, comparison with other countries, expenditure trends or budget gap analysis, per capita drug budgets, political visibility, and economic impact on local industry (Ref. [23], Cha. 40). Systematic methods for quantification of drugs requirements based on morbidity or consumption patterns exist and can be used to determine financing needs. (Refer to Refs. [41], and [23], Cha. 14 for more details on the available methodologies and their relative advantages and disadvantages). WHO has previously suggested a minimum figure of US$ 1.00 per capita annually as an appropriate target for public expenditures for drugs [10,44]. The adequacy of this figure depends on several factors, including the volume of government-financed health care, the range of conditions for which drugs are provided, and the availability of other financing sources such as insurance and user fees.

The hazards of applying structural adjustment programmes (SAPs) and austerity economic reform policies equally across all sectors, including health and other social sectors, have been strongly highlighted by recent analysis of health sector reform [29]. Already, as a share of national output (GNP), public spending on health in developing countries is one-quarter to one-half that of industrialized countries, as noted above (Table 3). Health financing reform should improve the use of public resources, but it should not be aimed at further reducing public spending on health.

Ultimately, the level of public commitment for financing health care and essential drugs reflects national decisions. However, these decisions should be a matter of explicit public policy, based on an analysis of health care needs and financing options. Some form of public spending will always be needed to ensure access to drugs by the poor; and to ensure provision of drugs for tuberculosis, sexually transmitted diseases, and other communicable diseases.

Policy makers, managers responsible for health care financing, and essential drugs managers should be familiar with the methods for analysing public financing of drugs and for planning public expenditures for drugs.

to previous section
to next section
 
 
The WHO Essential Medicines and Health Products Information Portal was designed and is maintained by Human Info NGO. Last updated: June 25, 2014