Facility Financial managementSystems and processes at the facility level to track revenues and expenditures, ensure that resources are not wasted, and ensure that desired results are achieved refers to systems and processes at the health facility level to track and manage revenues (funds received from government transfers, insurance payments, and patient fees) and expenditures (outlays on personnel and other inputs). Strong financial management systems allow facilities and the health system overall to manage and track funds effectively, comparing spending to estimated budget allocations and adjusting as needed. They also help identify when underperformance is due to inefficiency or insufficient funding and plan for future spending needs.
Common components that health facilities need to manage include personnel, operations, and capital spending.
- Personnel (also called remuneration) includes staff salaries and fringe benefits. Staff who are government employees may be hired and paid directly by the central or subnational government. Sometimes the civil service is entirely administered by another ministry outside the health sector – for example, a Ministry of Labor – and their costs will not be handled by the facility at all. In some contexts, health facility managers can hire additional contract staff to cover for staff shortages or fill specific positions (e.g. laboratory services). These costs would be managed directly by the facility.
- Operations include the non-personnel inputs required to run the facility and can include:
- Medicines, supplies and equipment. These are either procured centrally and distributed in-kind, or facilities may receive funds directly and manage their own procurement.
- Community outreach activities. These would include allocations for vehicles and fuel costs, educational supplies, etc.
- Maintenance, utilities, and sanitation.
- Capital spending includes infrastructure improvements. These may also be managed centrally, sometimes by a separate public works ministry.
Challenges with facility financial management
Many primary care facilities have only limited authority to manage their own funds. They may not have a facility bank account that they can access directly; their staff may be managed and paid centrally and they may have little ability to hire and fire staff locally. Medicines and supplies may be provided in kind, and facility managers may not have the ability to procure them directly or adjust quantities based on patient needs. If they do have direct access to funds, there may be strict regulations about use of those funds and little flexibility in their allocation. Clinical staff might lack training in financial management, and the information infrastructure necessary for good accounting may be limited.
In addition to public funds, internally generated funds – including user fees and other revenues collected directly by facilities – may constitute a pool of discretionary funds at the facility. In some contexts, internally generated funds are controlled by facilities, while in others, facilities are required to return them to the district or central treasury. If controlled by facilities, these funds are sometimes “off-budget” (not included in the official budget) and have weak or absent reporting requirements. 1 In many contexts, different sources of funding are intended for different portions of the facility budget, but facilities often have difficulties managing and accounting for these fragmented funds.
Increasing facilities’ autonomy to manage funds
“Provider autonomy” refers to the extent to which frontline facility managers have the authority to function as funds managers and to change the mix of inputs and services they provide based on their patients’ needs (e.g. to respond to an unexpected outbreak of disease or to adapt to a change in drug pricing). When health facilities have strong financial management capacity and authority to make some financial management decisions, they are more likely to adjust service provision and deploy inputs based on the needs of the population. 2
Introducing greater provider autonomy in funds management at the facility level typically requires reforms to a country’s Public financial managementThe rules and regulations established to ensure transparent, effective, accountable management of public (government) finances. PFM includes all phases of the budget cycle, including the preparation of the budget, budget execution, internal control and audit, procurement, monitoring and reporting arrangements, and external audit. (PFM) regulations. 6 PFM regulations aim to promote transparent, effective, accountable management of government finances. 1 They touch upon all phases of the budget cycle, including the preparation of the budget, internal control and audit, procurement, monitoring and reporting arrangements, and external audit. However, some PFM rules – intended to ensure predictability of spending and careful fiscal control -- can create inefficiencies in the health sector, where health care needs are unpredictable and quick responses to crises are essential.
Changes to PFM regulations may be needed to increase the authority of lower-level spending units (including health facilities) to flexibly move funds across budget lines. This can improve PHC performance by enabling facilities to respond to changes in population needs and provider payment incentives more nimbly. 1 (In general, these changes should be integrated into broader health system reforms 7, including but not limited to primary care, and must be closely coordinated by the Ministry of Finance.)
Budget officials may consider disbursing some cash income directly to primary care facilities, rather than only in-kind inputs. This can provide facility managers more flexibility to reallocate funds as needed. Recognizing that most medicines and supplies will be bulk-procured centrally, allowing facilities to procure small amounts of medicines and supplies with their funds may reduce both wastage and stock-outs and improve responsiveness to short-term local needs. Dedicated facility bank accounts are necessary for facilities to receive direct funds transfers, and allowing them to receive cash income and open bank accounts may require changing their legal status; this can be a serious bottleneck in some contexts. Facility bank accounts can also help expedite disbursements and increase budget execution rates.
Ensuring alignment between how facilities receive funds and Public financial managementThe rules and regulations established to ensure transparent, effective, accountable management of public (government) finances. PFM includes all phases of the budget cycle, including the preparation of the budget, budget execution, internal control and audit, procurement, monitoring and reporting arrangements, and external audit. regulations on how funds are used and accounted for is critically important. In many countries, the beneficial impacts of provider payment reforms (see the Health Financing improvement strategy) have been muted by a lack of provider autonomy to allocate funds at the facility level, sometimes due to strict PFM rules. At the primary level, greater provider autonomy has been most commonly introduced through Performance-based financingProviding financial incentives to providers based on the achievement of pre-defined, measurable, and agreed-upon performance targets. or results-based financing programs (e.g. Zambia, Rwanda, Nigeria, Democratic Republic of the Congo, Burundi). 8 Similar “Direct facility financingThe practice of directly transferring funds to health facilities for their management and use. ” interventions, where cash funds are directly transferred to primary care facilities and they are granted autonomy in the planning, management, and use of those funds to improve service delivery, are underway in Kenya 9 and Tanzania. 10
Strengthening financial management capacity
Of course, facilities with increased autonomy to manage some of their own funds still require overall guidance on how funds can be utilized, with monitoring to ensure appropriate use and prevent leakage. In order to effectively manage facility budgets, managers must have the capacity to engage in proactive planning and forecasting, and to account for and report on expenditures incurred at the facility level. Health system leaders should provide training and financial management guidelines to support facility managers in the forecasting and reporting processes. At the primary care level, training in management of a cash book can support day-to-day expenditure management, while larger facilities often require dedicated accounting and/or financial management staff. 6 In larger facilities, managers should have the capacity to develop and negotiate facility business plans to guide spending. Adequate financial management information systems are essential to track expenditures and report on cash income.
In addition to training, under systems with increased provider autonomy health system managers must also employ new or strengthened accountability systems to ensure that facilities are utilizing funds for their intended purpose. 6 9 Improved recordkeeping at the facility level can increase the accuracy of public expenditure tracking surveys, which can be utilized to monitor improvements in funding flows to facilities over time.