Moritz Piatti-Fünfkirchen Collins Chansa Dominic Nkhoma Moritz Piatti-Fünfkirchen Collins Chansa Dominic Nkhoma © 2020 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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CONTENTS Abbreviations.................................................................................................................................................... i Acknowledgments............................................................................................................................................. ii Executive Summary......................................................................................................................................... iii 1. Introduction................................................................................................................................................. 1 2. Data and Methods....................................................................................................................................... 5 3. Findings....................................................................................................................................................... 8 3.1 Overview............................................................................................................................................ 8 3.2 PFM Environment at the District Level............................................................................................... 8 3.3 PFM Environment for Provider Performance.................................................................................... 9 3.4 Performance on Service Delivery Goals at Each Stage of the Budget Cycle................................... 11 4. Discussion and Recommendations.......................................................................................................... 16 4.1 Strengthen the Role of Districts......................................................................................................... 16 4.2 Enhance Autonomy at Health Facility Level...................................................................................... 16 4.3 Make Spending More Flexible........................................................................................................... 17 4.4 Unify the Payment System................................................................................................................. 17 4.5 Make Strategic Budget Allocations................................................................................................... 17 4.6 Recommendations............................................................................................................................. 18 References...................................................................................................................................................... 20 Annexes........................................................................................................................................................... 22 FIGURES Figure 1: Flow of Funds in the Health Sector in Malawi .................................................................................. 3 Figure 2: Conceptual Framework: PFM, Provider Management and Service Delivery Goals......................... 5 TABLES Table 1: Assessment Criteria for Examining how PFM Affects Service Delivery ............................................ 7 Table 2: Example of the Assessment Criteria ................................................................................................. 7 Table 3: Budget Performance, MK millions ..................................................................................................... 9 Table 4: Allocation of Transfers to Local Governments .................................................................................. 9 Table 5: PFM Environment by Budget Phase and Managing Authority .......................................................... 10 Table 6: PFM Environment by Budget Phase, Managing Authority and Facility Type ................................... 10 ABBREVIATIONS CHAM Christian Health Association of Malawi CMST Central Medical Stores Trust DHMT District Health Management Team DHO District Health Office FMIS Financial Management Information System HCI Human Capital Index HSJF Health Services Joint Fund HSSP Health Sector Strategic Plan MoFEPD Ministry of Finance, Economic Planning and Development MoHP Ministry of Health and Population NGOs Non-Government Organizations ORT Other Recurrent Transaction PEFA Public Expenditure and Financial Accountability PFM Public Financial Management SLA Service Level Agreement UHC Universal Health Coverage Public Financial Management in the Health Sector i ACKNOWLEDGMENTS T his health sector public financial management (PFM) review was conducted by the World Bank’s Health, Nutrition and Population (HNP) Global Practice with financial support from the Global Financing Facility for Women, Children and Adolescents (GFF). The study was part of a broader public expenditure review2 and has benefitted from associated peer review and quality assurance processes. The PFM review was conducted by Moritz Piatti-Fünfkirchen (Senior Economist, HNP), Collins Chansa (Senior Health Economist, HNP), and Dominic Nkhoma (Consultant). Conceptualization of this work benefitted from invaluable input from Pia Schneider (Lead Health Economist, HNP) and Deborah Hanna Isser (Lead Governance Specialist). Toni Lee Kuguru (Health Specialist, HNP) and John Borrazzo (Senior Health Specialist, GFF) provided technical input throughout the review process while Inaam Ul Haq (Program Leader), Ernest Massiah (Practice Manager, HNP), and Hugh Riddell (Country Manager, Malawi) provided overall guidance. The draft report was peer reviewed by Michael Anthony Roscitt (Public Sector Specialist, Governance), Mariam Ally (Senior Health Economist, HNP), and Marion Jane Cross (Senior Health Economist, GFF). Officials from the Ministry of Health and Population, namely: Gerald Manthalu, Pakwanja Desiree Twea, Kate Langwe, and Atamandike Chingwanda also reviewed and verified the findings and conclusions in the report. The generous time and collaboration with staff at district councils, district health offices, and health facilities managed by the Malawian Government and the Christian Health Association of Malawi are also highly appreciated. Final technical review and editorial support were provided by Carolina Michelle Kern (Consultant). Administrative support was provided by Gloria Pamela Chinguo (Team Assistant) and Chamwisangah Chimbwefu Msachi (Administrative Assistant), and graphics design by Robert Waiharo (Consultant). 2 World Bank. 2020. Malawi Public Expenditure Review 2020: Strengthening Expenditure for Human Capital. Washington DC: World Bank ii Public Financial Management in the Health Sector EXECUTIVE SUMMARY T his study assesses the extent to which public financial management (PFM) in Malawi supports health service provision at the local government level. Using a conceptual framework that links the budget cycle to health service provider management and service delivery goals, the study assesses how the various stages of the budget cycle affect service delivery at health centers and hospitals. Government and faith-based health providers, known as Christian Health Association Malawi (CHAM), are assessed separately. The study provides insights into provider autonomy and flexibility; financial management capacity; payment arrangements; and the performance orientation of budget provisions or purchasing. The results suggest that significant gaps exist, which undermine the service delivery goals of efficiency, quality, equity, and accountability of service provision. A summary of the findings is presented below. Enabling Environment at the District Level Districts councils are mandated to deliver services at the local level, but their ability to influence outcomes is limited. Most actual spending decisions continue to be made at central government level. This includes hiring decisions, salaries and wages payments, development spending, and transfers to CHAM providers. Drugs and medical supplies are also procured centrally and distributed to providers directly based on a shadow budget. The only authority that district administrations have over actual spending is limited to the district development fund and non-wage recurrent spending, which excludes wages and medical supplies. Further, as information systems are not well integrated, District Health Management Teams (DHMT) also have limited oversight over how other funds are allocated and used, which undermines their stewardship position. While spending across categories is complementary, district management does not have the necessary information to make well-informed decisions on budget allocations. Financial accountability can still be ensured, but it is challenging to hold districts accountable on service delivery performance if they only manage a small share of spending and have limited oversight over the remainder. Fiscal transfers to districts have generally made resources available as budgeted. This has provided confidence at the district council level that planned activities can be implemented. Furthermore, sector specific allocations within districts tend to be reliable, with health receiving about 22 percent of the recurrent transactions budget. While allocations were quite stable in nominal terms, they have declined in real per capita terms dramatically over the past five years. There is some evidence of delayed transfers and inter-sectoral borrowing of earmarked funds, but these factors were not found to be a major bottleneck to service delivery. Budget Formulation Planning and budgeting processes are in place but ineffective for prioritization of activities. Key gaps include lack of provider autonomy or recognition of providers in the budget (in any form), and inadequate communication of budget decisions to health facilities. Fragmentation of planning and budgeting across financing sources is not yet a major concern but may become critical if the government leverages more external resources to support providers in the delivery of an essential benefit package. Public Financial Management in the Health Sector iii Executive Summary Equity considerations exist but are not effective. While the budget should be set following a formula that includes equity considerations amongst other things, it is still an input-based historical budget. Due to urbanization and shifts in disease burden, the budget has become increasingly inequitable. Furthermore, budget allocations are set at the district level, but there are no equity considerations related to supporting providers within districts. While the allocation to CHAM providers is direct and includes a provision for service utilization, they charge user fees for services not covered under the service level agreement (SLA) with the government. This exacerbates equity concerns from the beneficiary perspective. Quality of health service provision suffers from an insufficient budget and the inability of providers to balance key health inputs. Budget provisions are insufficient and have been eroded by inflation. Moreover, provisions do not follow service utilization or need. The reintroduction of user fees is being considered to address quality concerns stemming from inadequate financing, but this is likely to aggravate inequities. Therefore, other options to increase resources through the government budget and more efficient management of government funds should be pursued. Quality concerns are exacerbated by the inability of providers to balance inputs such as human resources, drugs and medical supplies, or other operational expenses. While district implementation plans should facilitate prioritization, this process is largely considered ineffective. CHAM providers are better resourced because their services are purchased on a fee-for-service arrangement. They are also in a better position to balance inputs due to their elevated levels of autonomy. Budget formulation does not support accountability in service delivery. The fact that DHMTs are responsible for financial management and government service providers accountable for the delivery of services creates an accountability gap. In the case of CHAM providers, these functions are aligned. SLAs at CHAM facilities take into consideration utilization patterns and therefore have a closer link to accountability. Moreover, CHAM hospitals have at least one board member with an accounting background who provides guidance on budget preparation and expenditure management issues, and who is expected to align services with spending. Budget Execution Central government execution guidelines govern how DHMTs manage spending. The DHMT is the lowest spending unit and is in charge of executing the budget, including for hospitals and health centers. Standard PFM protocols stipulate that the budget should be executed as planned. Execution protocols emphasize control over flexibility. Budget execution protocols at the district level require input-based controls of the line item budget. Making adjustments, such as shifting funds across budget lines, require a supplementary budget. These rigidities have led to districts avoiding the existing electronic system by using manual accounting, which bypasses internal controls. While this results in greater flexibility, it undermines the Public Finance Management Act No. 7 of 2003 and raises accountability concerns. Greater flexibility for budget execution at the district level should be pursued as a policy rather than an ad-hoc reaction to an inadequate system. CHAM facilities receive a global budget and have significantly greater flexibility with regards to how they can spend money. iv Public Financial Management in the Health Sector Executive Summary Proximity to DHMTs has a bearing on communication and procurement of supplies. While government- run facilities do not have autonomy to procure inputs, funding releases from the treasury are usually communicated better when health facilities are closer to their respective DHMT. In these cases, health centers or hospitals receive alerts that funding has come in and can request supplies based on their needs. On the other hand, where health facilities are located far away from the DHMT, communication is considerably worse resulting in fewer supplies being requested. These facilities also tend to receive supplies that do not reflect priority needs. Budget releases to districts are not communicated well to providers. Consequently, late release of funds leads to commitments being made without adequate money to cover them. This contributes to the accumulation of arrears and undermines the existing fragile systems that are in place. Once money is available, however, payments are generally processed swiftly. In terms of their day-to-day operations, service providers also lack adequate information regarding the delivery schedules and quantities of essential supplies. These depend on when funds at the DHMT-level are available, how the DHMT decides to spend them, and which providers will benefit. Moreover, medical staff are inadequately consulted during the procurement of drugs and medical supplies, as this happens at the district level, leading to inflated prices and poor-quality supplies. Budget Evaluation The PFM system makes it difficult to associate spending with service delivery outputs from a provider perspective. The budget structure does not accommodate hospitals or lower-level providers. Specifically, the financial management information system (FMIS) does not recognize these as budget holders or spending entities. It is therefore not possible to get facility-specific spending reports, which raises accountability concerns. Given that it is difficult to establish a linkage between financing inputs and performance, evaluating the effectiveness of spending is challenging. Communities served by government health facilities do not receive timely information about allocations, which means that they cannot hold facility managers accountable. At the district council level, relevant committees can provide oversight on budgets. However, such oversight mechanisms are not available for health centers and hospitals located further away from DHMTs. CHAM providers have better accountability mechanisms in place, in part through community representation on CHAM hospital boards. Evaluation of spending does not cover effectiveness of infrastructure investments. Infrastructure investments will only lead to improved service delivery if they come with adequate operational budgets and human resources. The evaluation capacity for public investments could be strengthened to provide better value for money. Budget evaluation processes are insufficiently linked to performance. This is because findings from budget evaluation processes do not adequately inform budget provisions in the subsequent budget cycle. Instead, allocations are based on historical input rather than on the performance of providers, or the actual provision of services. This undermines quality, raises equity concerns, and does not incentivize providers to operate efficiently. While active purchasing for government providers may not be feasible in the short term, orienting budget provisions to mimic purchasing principles could be a good start. Public Financial Management in the Health Sector v 1. INTRODUCTION 1.1 Health outcomes in Malawi have improved significantly over the past two decades. Despite adverse macro-fiscal conditions, fiduciary concerns, and donors shifting funding toward off-budget financing modalities, there has been promising progress in service delivery outcomes. Under five mortality has, for example, declined at a more rapid rate than the sub-Saharan Africa or low-income country average. Similarly, evidence on maternal health shows substantial improvements. However, Malawi is lagging behind in some key health and nutrition indicators, such as prevalence of stunting among children under-5, HIV, and malaria. These contribute to the low human capital index (HCI) of 0.41 for Malawi.2 This means that a child born in Malawi in 2020 will be 41 percent as productive when she grows up as she could have been if she had complete education and full health. Out of the five indicators aggregated in the HCI index, the high level of stunting among children under-5 is one of the main underlying reasons for the low HCI in the country. More detail on Malawi’s health sector performance is provided in Annex 1. 1.2 It is important to protect hard-won gains and build on this progress to move towards universal health coverage. COVID-19 has created significant fiscal pressure that has affected growth potential and government revenue streams. At the same time, spending pressures from across sectors have increased. Much work remains to be done in this challenging environment to react to changing needs and to meet the National Health Policy objective of achieving “universal health coverage of quality, equitable and affordable health care with the aim of improving health status, financial risk protection and client satisfaction” as set out in Malawi’s 2018 National Health Policy (Government of Malawi, 2018a). 1.3 The government articulated a detailed plan to pursue the objective set out in the National Health Policy through a Health Sector Strategic Plan (HSSP) covering the period 2017-2022. Known as HSSP II, the plan aims to achieve universal health coverage (UHC), articulated as “a situation where everyone – irrespective of their ability-to-pay – gets the health services they need in a timely fashion without suffering any undue financial hardship because of receiving the care” (Government of Malawi, 2017). The implementation of the HSSP II is constrained by limited resources, however, and there appears limited scope to draw on other sources for additional funds (Chansa et al., 2018). This makes the efficient use of government spending paramount, especially in light of recent literature that finds that the quality of PFM significantly affects service provision and health outcomes (Piatti-Fünfkirchen and Schneider, 2018). A comparative empirical analysis of PFM and health outcomes showed that a one unit increase in PFM, as measured by public expenditure and financial accountability (PEFA) assessment scores, is associated with a reduction of child mortality of about 14 deaths per 1,000 live births (Piatti-Fünfkirchen and Smets, 2019). However, current PFM practices may undermine the effective allocation and utilization of resources. 2 https://databank.worldbank.org/data/download/hci/HCI_2pager_MWI.pdf Public Financial Management in the Health Sector 1 1. Introduction 1.4 This study aims to identify deficiencies in the management of public funds that may inhibit health service providers from efficiently executing their mandate. Based on this analysis, it offers a set of practical recommendations on reforms that could create a better PFM enabling environment to allow for effective and efficient provision of health services. While the study fully recognizes the importance of upstream fiscal management and PFM practices, an emphasis of local government is taken within which health centers and hospitals operate. 1.5 The study explores the various stages of the budget cycle. This involves identifying how public funds flow through the health system, and how various agencies formulate, execute, and evaluate the budget. The transmission mechanism between PFM practices and service delivery goals is discussed to assess how the PFM environment affects the ability of service providers to operate effectively. The assessment is based on survey questions from a set of purposefully selected facilities. 1.6 In terms of health financing, the Ministry of Finance, Economic Planning and Development (MoFEPD) provides an annual budget allocation to the Ministry of Health and Population (MoHP) as well to Malawi’s 28 districts. The MoHP executes the budget for tertiary care and central level activities such as oversight and public health activities. Districts receive a bulk budget allocation to a district revenue account for the implementation of all decentralized services, which includes health. The MoFEPD also provides funding to the Central Medical Stores Trust (CMST), a quasi-autonomous body that procures drugs and medical supplies in bulk for government facilities. Some donors also support service delivery at the local level through the Health Services Joint Fund (HSJF) that is administered by the government. The flow of funds in the health sector in Malawi is described in Figure 1. (i) Government facilities receive support in kind through the district health office (DHO). All procurement and financial management decisions at government health facilities are undertaken through the DHO. The DHO draws on a budget allocation that is provided directly by the MoFEPD. It is pooled in a district revenue fund but earmarked for health. Government facilities receive drugs and medical supplies from the district medical store. All drugs and supplies are procured centrally by the CMST and a virtual budget is drawn down from facilities throughout the year. If emergency drugs become unavailable at the CMST, they can be procured through the recurrent transactions budget at the district level. (ii) CHAM is a religious private-not-for-profit network of health providers. CHAM facilities receive wage and salary payments from the MoHP. The MoHP, through its recurrent transactions budget, sends a transfer to the CHAM secretariat, which in turn passes on the funds to respective health facilities for them to make wage payments. Operational expenditures for CHAM health centers and hospitals are covered through user fees and from the HSJF. CHAM facilities purchase drugs from the CMST or from the private sector. 2 Public Financial Management in the Health Sector 1. Introduction Figure 1: Flow of Funds in the Health Sector in Malawi Source: Authors. Note: SLA = Service Level Agreement Public Financial Management in the Health Sector 3 1. Introduction 1.7 The study includes health centers and hospitals managed by the government and CHAM. The main reasons for including government and CHAM health centers and hospitals in the study is: (i) because of the large share of health facilities in the country that are managed by the two entities, (ii) due to the existence of a memorandum of understanding between the two parties and SLAs at district level, and (iii) to facilitate learning across different types of health facilities and managing authorities. Together, the government and CHAM own 63 percent of the total number of health centers and hospitals in the country, and it is at these facilities where a large proportion of the poor Malawians access health care. While medical user fees are charged at CHAM health facilities, officials at DHOs can sign an agreement with CHAM for the provision of free health services in communities where there is only a CHAM health facility. 1.8 This study was undertaken as part of a Public Expenditure Review (World Bank, 2020). It provides complimentary guidance as to how PFM systems facilitate provider management and service delivery at district level health centers and hospitals. Findings and recommendations from the study are expected to support decision makers and practitioners with ongoing PFM reforms. For an overview of Malawi’s health sector and details of its performance on PFM, see Annexes 1 and 2. 4 Public Financial Management in the Health Sector 2. DATA AND METHODS 2.1 The study is based on a conceptual framework that guides the enquiry of how PFM practices affect health service delivery (Figure 2). The assessment is primarily based on interviews with stakeholders from six district councils and DHOs, and managers at 17 health centers and hospitals run by the government and CHAM. Health centers and hospitals managed by government and CHAM were included in the assessment to facilitate learning across different types of health facilities and managing authorities. The selection of districts and health facilities for the study was based on guidance on qualitative research (Yin, 2015) and consultation with government officials. In general, 95 interviews were conducted as follows: 12 at district councils, 27 at DHOs, 32 at hospitals, and 24 at health centers. Interview data were also triangulated with financial and administrative data. Annex 3 provides details on the districts and health facilities which were visited. 2.2 The study was undertaken in two parts. The first looked at the PFM environment at the district level with a particular emphasis on understanding the credibility and timeliness of fiscal transfers to providers. For this assessment, there was no scoring. Data was derived from key informant interviews and financial and administrative records. The second assessed the PFM environment at provider level at health facilities managed by government and CHAM. The methodology follows a simplified, three- stage budget cycle to allow a focus on key issues such as how priorities are determined; how funds are allocated; the rules and processes that govern the actual expenditure process; and how execution is evaluated and informs the subsequent budget allocation process (Rajan et al., 2016; Barroy et al., 2018; Piatti-Fünfkirchen and Schneider, 2018; Cashin et al., 2017; Chakraborty et al., 2010). This gives a picture of the PFM context within which facilities operate. Facilities are at the forefront of service provision and are thus considered to be a critical transmission mechanism between PFM and service delivery goals. This conceptual framework is visualized in Figure 2. Figure 2: Conceptual Framework: PFM, Provider Management and Service Delivery Goals Budget Cycle Transmission Service Delivery Channel Goals Budget Budget Evaluation Formulation E ciency How the process How priorities are Legal status and Uni ed budget is evaluated and determined and exibility in spending/ provision/ payment informs the next funds allocated autonomy system budget allocation Equity Service Provider Quality Budget Financial Performance Execution management orientation/ Regulations on how budget capacity strategic purchasing Accountability allocations are used Source: Authors, based on Piatti-Fünfkirchen and Schneider (2018) and Cashin et al (2017). Public Financial Management in the Health Sector 5 2. Data and Methods 2.3 The PFM processes in the budget cycle assessed as part of the study are: (i) Strategic planning and prioritization. During this stage a country develops a vision together with a sector-wide plan of how to realize it. Taking a medium-term perspective, this process involves designing and prioritizing programs, as well as costing activities. All stakeholders, including donors, should be included during strategic planning and activity mapping. A rolling medium-term fiscal and expenditure framework is developed reflecting sector-wide priorities and progress. (ii) Budget preparation and financing. Based on a medium-term expenditure framework, an annual budget is developed that reflects proposed spending for the upcoming year from all sources, including the general government budget, on-budget donor funds, and other internally generated funds. The budget provides the legal basis for the executive to implement the sector-wide joint strategic plan. Activities in the budget subsequently need to be mapped to financing sources. (iii) Budget execution. Once the budget has been passed, funds need to be released by the government and donors for agreed programs and activities to be executed. The budget execution stage covers banking arrangements for the released funds, internal control protocols, and accounting and reporting standards. Keeping donor funds and internally generated funds in commercial banks outside the purview of treasury may introduce inefficiencies (such as buildup of idle balances, while treasury borrows from external sources). Using separate execution protocols and information systems to process expenditure transactions, and to record and track expenditure and receipts may lead to unnecessary fragmentation. (iv) Budget evaluation. The budget needs to be evaluated comprehensively in financial and performance terms to inform subsequent budget decisions. This requires a unified approach and comprehensive execution reports covering all financing sources. 2.4 A total of 28 criteria were developed to test how the PFM mechanisms described above may affect service delivery goals at the provider level. These were developed after an extensive literature review and interviews with key stakeholders. Interviews were conducted with key informants from the MoFEPD, the MoHP, and the National Local Government Finance Committee. The purpose of these interviews was to understand how the budget works across the PFM cycle from the perspective of national-level decision-makers. It also helped to refine the questionnaires for downstream interviews. Since improving health service delivery is a fundamental goal for the Malawian government, a working definition – in line with the World Health Organization’s definition – was adopted by the study team, which characterizes health service delivery is as the “immediate output of the inputs into a health system” (World Health Organization, 2008). Public finance, and the management thereof, is a key component in the production function of services. Four services delivery goals – equity, quality, efficiency, and accountability of service delivery – drawn from the 2013 health financing framework (Kutzin, 2013) were mapped into a service delivery/PFM matrix (Table 1). A set of assessment criteria were then used to assess each element of the matrix. For example, criteria 1-4 determine the strength of efficiency during budget formulation. 6 Public Financial Management in the Health Sector 2. Data and Methods Table 1: Assessment Criteria for Examining how PFM Affects Service Delivery Service Delivery Goals Budget Formulation Budget Execution Budget Evaluation Efficiency Criteria 1-4 Criteria 12-17 Criteria 24 Equity Criteria 5 Criteria 18 Criteria 25 Quality Criteria 6-8 Criteria 19-20 Criteria 26 Accountability Criteria 9-11 Criteria 21-23 Criteria 27-28 Source: Authors, adapted from Piatti-Fünfkirchen and Schneider (2018). 2.5 Criteria were assessed on a four-point scale from A to D. An ‘A’ is the best available score on the metrics. Definitions for each score for the criteria are provided in Annex 4. An example of a scoring metric is provided in Table 2. Table 2: Example of the Assessment Criteria A B C D There is a unified budget Facility budgets include Facility budgets include Facility budgets are for for all funding sources government, user fees government, user fees government funding only (government, donors, (if any) and the majority (if any) and some donor or there are no facility insurance payments, of donor funding. funding. budgets. internally generated revenue) at the facility level. Budget allocation The budget allocation The mix of inputs does not The mix of inputs is processes provide an process provides for support quality of service inefficient and affects adequate mix of inputs a reasonable mix of delivery well. quality of service delivery (including HR, operational inputs. (e.g. staff available without and investment budget) adequate supplies, etc.). for quality service delivery. … … … … 2.6 Dimensions in the matrix are a composite of assessment criteria. Each dimension in Table 2 (e.g. efficiency of budget formulation) was derived from a set of assessment criteria. Assessment criteria were then aggregated into a single dimension score in line with guidance for creating composite indicators (Nardo et al., 2005). This method has also been used extensively in other diagnostic frameworks such PEFA assessments (PEFA, 2018). For example, two criteria assessed with a ‘B’ will translate into a single dimension score ‘B’. Two ‘Bs’ and an ‘A’ will translate into a ‘B+’, etc. The aggregation process and dimension scores are presented in Annex 4. 2.7 Scoring was used to benchmark and interpret findings. Facility scores pinpoint the relative importance of dimensions and assess what drives the performance of a dimension within the PFM/service delivery matrix. This can help to support reform processes, including learning from positive deviation. It should be noted that while scoring needs was as objective as possible, some subjectivity may have emerged as survey questions were mostly qualitative in nature. Public Financial Management in the Health Sector 7 3. FINDINGS 3.1 Overview 3.1 This chapter presents findings of the (i) PFM environment at the district level; and the (ii) PFM environment for provider operations at health centers and hospitals. At district level, overarching PFM questions on budget credibility and provider management are raised. For health centers and hospitals, the chapter discusses the various scores and dimensions following the budget cycle as discussed in the previous chapter. For example, there is a discussion on how budget formulation, execution, and evaluation each affect service delivery goals, namely: efficiency, equity, quality, and accountability of providers. 3.2 PFM Environment at the District Level 3.2 District councils have limited authority over district spending. Despite decentralization and fiscal transfers to the district councils, they have limited control over funds. The DHMTs only have authority to use district-level recurrent transfers sent to the district administration and limited resources from the district development fund. All salaries and wages are determined centrally by the MoHP and paid directly from the MoFEPD. The drug budget is executed centrally, through the CMST. The development budget is not devolved and executed in full by the MoHP. Furthermore, salary payments for CHAM facilities are channeled through the MoHP, not council administrations. The flow of funds is presented in Figure 1 3.3 Similarly, district councils have limited oversight over total spending at the district level. As with spending authority, oversight only pertains to the “other recurrent transaction” (ORT) budget allocations. This means that they do not have a full picture of other budget items that are relevant to the district. As spending for service delivery is complementary, limited oversight and information – even regarding budgets that councils do not have authority to spend – makes it difficult to allocate resources efficiently. This also affects accountability. Financial accountability rests where actual spending happens. However, it is difficult to hold districts accountable for service delivery and outcomes when they only control part of the spending, and have limited oversight and information on spending from other sources. 3.4 Budget credibility provides a (somewhat) supportive environment for service provision. In general, budget credibility for district councils is high (Table 3). In the 2014/15 and 2015/16 fiscal years, the budget execution rate for district councils was 96 percent and 93 percent, respectively. In 2017, budget execution for district councils was more than double the originally allocated amount, which was in part due to payment of accumulated arrears. Arrears are overdue debts, liabilities, and obligations. They constitute a form of non-transparent financing. In comparison, the MoHP budget was less credible and suffered from significant underspending in 2017, amounting to a budget execution rate of only 66 percent. With regards to the total wage bill, overspending is limited and has not happened since the 2014/15 fiscal year. It is therefore unlikely to crowd out operational expenditures for service delivery. 8 Public Financial Management in the Health Sector 3. Findings Table 3: Budget Performance, MK millions 2014/15 2015/16 2016/17 Budget Actual Budget Actual Budget Actual MoHP 50,302 56,423 73,338 70,804 82,106 54,420 District councils 21,969 21,017 35,450 33,078 40,657 98,031 Total wage bill 188,202 227,911 271,838 268,319 332,424 317,375 Source: Authors, based on Government of Malawi (2018b). 3.5 Budget credibility has supported district-level health budget implementation. Central government fiscal transfers to districts were reasonably reliable, which has resulted in district health budgets being consistently implemented across expenditure categories. The system is different for CHAM providers, who draw on transfers from the MoHP that are less credible. However, the budget credibility of CHAM support has not suffered, mostly because these are for wage and salary payments for CHAM providers. 3.6 District allocations for sectors tend to be followed. Total transfers to districts are reliable and the allocation formula to sectors within districts is generally adhered to (Table 4). Furthermore, sector-specific allocations within districts are reliable, with health receiving about 22 percent of the district ORT budget. Wages and salaries are paid directly by the MoFEPD, and most drug procurements are done through the CMST. Table 4: Allocation of Transfers to Local Governments Transfer type Allocation formula Share of total transfers General resource fund Population 80% and poverty indicators 20% 7% Education Population of school age going children 19% Population and poverty - no specific Health 22% percentages were agreed upon for each Other sector funds No approved formulas 16% Infrastructure development funds Population 50%, poverty 50% 36% Source: National Local Government Finance Committee Reports. 3.7 Delays in transfers leads to some inter-sector borrowing. During the first two months of the fiscal year, funds are not always available in full at the district council level. In these instances, the health sector is prioritized. Funds allocated to other sectors are drawn upon and equalized later during the year. Paying for fuel for ambulances is an example of priority spending that was mentioned during interviews. 3.3 PFM Environment for Provider Performance 3.8 PFM processes across the budget cycle affect service provision. A summary of the consolidated scores for all health facilities visited as part of the study is provided in Table 5. The scores are aggregated for all the health facilities and examined by provider type or managing authority (i.e., government versus CHAM) at each stage of the budget cycle.3 In general, PFM processes that apply to government facilities are considerably more restrictive than those that apply to CHAM facilities. This is the case throughout the budget cycle but is most visible in certain aspects of budget formulation and evaluation. 3 In Annex 4, the questionnaire and individual scores for each criterion of the health service delivery goals at all the stages of the budget cycle are provided. Public Financial Management in the Health Sector 9 3. Findings 3.9 Budget formulation practices are considerably less supportive for government than for CHAM facilities, particularly on aspects of efficiency and accountability. Government facilities also do not support quality considerations as well as CHAM facilities. In terms of budget execution, processes are generally better across dimensions for both government and CHAM facilities, but there is a big divide in performance with regards to budget evaluation. Evaluation processes for government facilities do consider quality, but much less so when it comes to efficiency, accountability, or equity. CHAM facilities generally perform strongly with regards to accountability, efficiency, and quality, but equity concerns remain. Table 5: PFM Environment by Budget Phase and Managing Authority Service Delivery Measures Budget phase Managing Authority Efficiency Equity Quality Accountability Government D+ C C D+ Formulation CHAM B+ C B B Government B B C+ B Execution CHAM B A A A Government C D B C Evaluation CHAM B C B A Source: Authors. 3.10 The PFM environment is much worse at health centers compared to hospitals, but CHAM facilities still outperformed government facilities (Table 6). The differences in performance between health centers and hospitals can be attributed to differences in management capacities. In general, PFM processes that apply to health centers are considerably more restrictive than those that apply at hospitals. This is the case throughout the budget cycle but is most visible in certain aspects of budget formulation and execution. Further, health centers are generally weaker in terms of performance on accountability, efficiency, and equity at all phases of the budget cycle for both government and CHAM. Table 6: PFM Environment by Budget Phase, Managing Authority and Facility Type Health Centers Hospitals Budget phase Managing Authority E1 E2 Q A E1 E2 Q A Government D D D+ D+ D+ D C D Formulation CHAM D D C D+ B+ C B B Government D+ D D D+ C+ D D+ C+ Execution CHAM D+ C C D+ B B A A Government D D D D+ D D D C Evaluation CHAM C C D C A A A A Source: Authors. E1=Efficiency E2=Equity Q=Quality A=Accountability 10 Public Financial Management in the Health Sector 3. Findings 3.4 Performance on Service Delivery Goals at Each Stage of the Budget Cycle 3.11 The observations in Tables 5 and 6 are aggregated and at a high level. The remainder of this section provides more granular detail, discussing how service delivery goals (efficiency, equity, quality, and accountability) are affected at each stage of the budget cycle (formulation, execution, and evaluation). 3.4.1 Budget Formulation 3.12 Budget formulation and efficiency. There is considerable difference in how government and CHAM facilities are treated during the formulation of the budget. This affects their ability to operate efficiently. Government facilities are not explicitly recognized in the administrative segment of the chart of accounts and thus a facility budget is not explicitly formulated. Instead, allocations are made to districts on behalf of facilities. As they are not in the chart of accounts, they are also not recognized in the FMIS and therefore do not have formal spending authority. Instead, government facilities receive support from their respective DHMT, which can be in-kind, as cash advances, or in the form of grants. However, the level of support DHMTs provide to government health facilities was found to be unreliable and unpredictable. CHAM facilities, on the other hand, receive grants directly, which provides them with much more autonomy and flexibility. Their grants are also better communicated, which allows them to plan according to the anticipated budget envelope. Moreover, the support CHAM facilities receive is far more in line with facility workplans than their government counterparts. Finally, there was less fragmentation of financing sources during planning and budgeting for CHAM providers because financing partners were generally represented on a single plan. 3.13 Budget formulation and equity. There remain considerable equity challenges for both government and CHAM providers, but the nature of the challenge differs. For government facilities, broad equity considerations are, in theory, incorporated into the distribution of resources as they take account district population levels, and adjust for need. In practice, however, facilities are not explicit budget holders within districts, and the support they receive from the district administration is generally not informed by equity considerations. Instead, it is driven by historic allocation decisions and responsive only to the most urgent needs. Facilities do conduct needs assessments to inform the priorities to be considered in district implementation plans. However, this only supports prioritization of support within facilities and not equity consideration across facilities. Allocations are also separated from the functions that have been decentralized to local authorities. 3.14 Budget projections for CHAM facilities, on the other hand, are based on SLA payments from the government and projected user fees. These agreements are somewhat equitable as they reflect utilization patterns. User fees for services not covered under the SLA are highly inequitable, however, and deter utilization by the poorest population segment. Further, there have been instances where the government did not make SLA payments resulting in CHAM providers charging user fees for these essential services. Respondents estimated that when SLA payments were suspended by the government and user fees introduced, utilization rates dropped to about 25 percent of what they had been before. Respondents further suggested that where patients have no public facility within a reasonable distance, poor patients present late at CHAM facilities. This tends to be when their illnesses have already deteriorated, resulting in higher out-of-pocket payments than would be the case had they presented earlier. Public Financial Management in the Health Sector 11 3. Findings 3.15 Budget formulation and quality. The quality of service delivery provided by government facilities is affected by district-level budget allocations that are generally inadequate, as well as their inability to balance various inputs such as human resources, drugs and medical supplies, and other funding for operational costs. This is a reflection of the fragmented source of financing across government, as discussed above, and can lead to a situation where the operational budget does not follow staffing. Equity considerations to district budgets only applies to ORT and not human resource allocation decisions, which has implications for efficiency and quality of care. The district implementation plan allows for some prioritization of activities within facilities. These plans were, however, ineffective due to inadequate budget ceilings at DHMT level, and weak participation of communities and facility staff in the budget planning process. The budget for CHAM facilities is developed differently. It reflects projected workload (cost of actual utilization) and recruitment planning is also undertaken at CHAM facilities with approval from their secretariat. While CHAM providers also note that their budget remains insufficient to provide adequate quality of care, they are in a better financial position than government counterparts. 3.16 Budget formulation and accountability. For government facilities, DHMTs are responsible for financial management and facilities are responsible for service delivery. The fact that these two functions lie with different entities creates an accountability gap. Conversely, CHAM facilities are responsible for both financial management and service delivery. It is also worth noting that each CHAM board includes representation by an accountant who is responsible for linking spending to the delivery of services. For government facilities, plans are only reflected in district management plans if the DHMT is part of hospital management, which is not the case for all facilities. This distinction does not exist for CHAM facilities, all of whom must prepare an annual plan and budget for approval by the CHAM hospital board. Finally, the level of support government facilities receive from DHMTs is generally not related to utilization levels or quality, while for CHAM facilities their SLAs take into consideration utilization patterns and therefore have a closer link to accountability. 3.4.2 Budget Execution 3.17 Budget execution and efficiency. The PFM system requires budgets to be implemented as planned, with rigid input-based commitment controls. This means that there is limited flexibility to adjust to changing needs. In the health sector, this can be constraining as evidenced during the COVID-19 crisis response. To process unplanned spending (beyond virement limits and without formal budget revisions), transactions have to happen outside the FMIS. This undermines good budget management practices and is against the Public Finance Management Act No. 7 of 2003. Control and flexibility must be balanced for more efficient utilization of resources. While government facilities do not have autonomy to procure inputs, funding releases are usually communicated well when facilities and DHMTs are in close physical proximity. In these cases, facilities receive alerts that funding has been released from the treasury and can request supplies based on their needs. 3.18 Where facilities are located far away from DHMTs, communication is considerably worse. In fact, funding requests are often not made resulting in fewer supplies being received, or supplies being received that do not reflect priority needs. What is sent also tends to be insufficient and, during emergencies, some facilities make commitments with vendors without a commensurate budget. Inefficiencies can also be driven by fragmentation across financing sources. For government facilities, however, this is not a problem due to the limited sources of financing. For CHAM facilities, budget execution processes have more flexibility as there are no FMIS internal ex ante commitment controls and facilities have greater flexibility 12 Public Financial Management in the Health Sector 3. Findings on resource use. CHAM facilities also tend to have their own bank accounts and cash management processes. Payment processes are efficient and streamlined and there are limited opportunities for the accumulation of arrears. That said, differences in reporting requirements across financing sources do cause some administrative burden. 3.19 Budget execution and equity. Equity issues are generally addressed during the formulation stage of the budget. There is no systematic evidence that partially implemented budgets would exacerbate equity concerns. As mentioned above, there is some evidence of communication delays regarding the release of budgets to remote facilities (where facilities are located further away from the DHMTs), which leads to certain facilities being unaware of available funds and not processing funding requests. This can result in inequities as they are less likely to receive the support they need from district administration. For CHAM facilities, there have been concerns regarding MoHP withholding payments during cash rationing. While this can influence efficiency and quality, there was no evidence of payments being made more frequently to some CHAM facilities than others. 3.20 Budget execution and quality. The timeliness of budget allocations to districts has increased significantly and funds have generally become available as budgeted. However, budgets remain insufficient for quality service delivery at government hospitals, which was the most frequently voiced concern by respondents. Goods and services received from districts are often insufficient to provide quality services, even when the budget is released in full. Government facility managers are also not always aware of the quantity of goods and services procured on their behalf. Through the supply chain management system, government facilities are alerted of delivery schedules for drugs; have knowledge of what will get delivered; and which commodities are out of stock at the CMST warehouse. While this generally supports quality, what is available at the CMST is often not what facilities need. Procurement processes also pose a quality concern as they are managed at the central level with limited, or no, involvement of facility staff in procurement committees. This has been found to affect the adequacy, quality, and value for money of items procured. CHAM facilities also generally receive funds on time. As they procure most of their inputs directly, however, information sharing is less of a concern. 3.21 Budget execution and accountability. Budget execution processes for government facilities generally support financial accountability better than accountability for service delivery. Financial statements are available at the district level from the FMIS, and donor support poses no real problem as external funding availability is limited. What is problematic, however, is that there is no purchaser/provider, and that government facilities are not recognized as cost centers. This makes linking spending to service delivery difficult and constitutes an accountability concern. CHAM facilities, on the other hand, receive budget allocations directly from the MoHP. This establishes a purchaser/provider split meaning that funds can be traced to specific facilities where they can, in turn, be linked to service delivery measures. There were no other notable accountability concerns with CHAM. 3.4.3 Budget Evaluation 3.22 Budget evaluation and efficiency. Evaluation of government spending is compliance-driven and the lowest level that is assessed is the district level. Grants to be spent by facilities are considered to be district- level expenditures and are not reviewed further. Performance audits do happen at the district level, but there is limited capacity and insufficient financial resources to pursue these in depth. While compliance Public Financial Management in the Health Sector 13 3. Findings is important, the lack of performance information to inform subsequent support to facilities is apparent and constitutes an efficiency concern. For CHAM facilities, there is a closer link between facility budget allocation and performance due to the design of the payment system. For SLA grants, capitation is used to determine the annual ceiling for each facility. Per-case-payment, at rates negotiated between the government and CHAM secretariat, are used to reimburse facilities for services delivered with each facility’s total annual expenditure capped to its ceiling. A more frequent review of SLAs and careful verification of services reported could strengthen the contracting arrangement with CHAM providers. 3.23 Budget evaluation and equity. Equity considerations do not feature prominently in the budget evaluation process. The budget is evaluated on a compliance basis to determine whether basic financial management protocols were followed. This helps to understand whether the budget was implemented as planned, but does not inform whether the design was inequitable, or whether implementation problems led to inequities. For CHAM facilities, equity considerations are also not explicitly evaluated though there is an implicit understanding that equity concerns are accommodated through paying SLA on a capitation basis adjusted for utilization. As discussed above, equity concerns for access to the poor remain, but have not explicitly been reviewed and no significant changes to SLAs or budget allocations to facilities have been introduced in recent years. 3.24 Budget evaluation and quality. All government facilities visited had quality improvement support teams in place, and these were said to be effective in overseeing the quality of services provided. DHMTs highlighted weak funding; high stock-outs rates for drugs and medical supplies; lack of and/or poor- quality equipment and essential infrastructure; inadequate human resources capacity; and weak management and logistics support systems as major limitations to achieving quality of care in facilities. When poor quality is traced to a particular individual (i.e., poor case management or medical error), DHMTs indicated that sanctions are applied, and where feasible, they are disciplined. In some cases, however, central level authorities intervene in the disciplining process by transferring health workers to other districts. While quality measures are set out, they do not integrate well into the budget allocation decision process. Government facility budgets are based on historical precedence and are supported through district implementation plans. Quality considerations with regards to service delivery are also not considered. For example, budget allocations to facilities (or in-kind support to facilities from districts) do not reward, or penalize, quality. 3.25 For CHAM facilities, quality of care is also not a key output of SLAs. However, inadequate quality can lead to suspension of the SLA component and therefore have significant budget implications. CHAM hospital boards include technical staff, such as the DHO and directors from the MoHP, who also oversee quality. CHAM facilities evaluate goods and services for future quality control and there are built-in mechanisms to evaluate and respond to quality gaps. Moreover, CHAM facilities are subject to periodic monitoring and evaluation processes. These were attributed to near-zero stock outs rates for drugs and medical supplies; good maintenance of essential infrastructure; adequate response to filling vacancies when budget are approved; use of resources from income-generating activities to hire additional staff; and paying of costs incurred by the poorest members of the communities using surplus from income generating activities. 14 Public Financial Management in the Health Sector 3. Findings 3.26 Budget evaluation and accountability. Budget evaluation processes do not adequately support accountability in the public sector. For example, the procurement of drugs and medical supplies is managed directly by the CMST, while payment for these commodities is made by the MoHP. At no point are facility managers included in the process. As such, it is difficult to hold facilities accountable for quality service delivery since most of the inputs they need to manage the provision of care are not directly under their control. Conversely, CHAM facilities have greater autonomy and control over the majority of inputs and external audits are conducted on an annual basis. Public Financial Management in the Health Sector 15 4. DISCUSSION AND RECOMMENDATIONS 4.1 PFM processes have a substantial bearing on service delivery outcomes since they affect how effectively service providers can operate. As a way of drawing the learning from the study together, this chapter synthesizes the information into five key categories, namely: (i) strengthening the role of districts; (ii) enhancing autonomy at health facility level; (iii) making spending more flexible; (iv) unifying the payment system; and (v) making strategic budget allocations. 4.1 Strengthen the Role of Districts 4.2 The role of districts is different for government and CHAM providers. Districts are the lowest spending entities in government and all spending is recorded at this point. They receive funds on behalf of government facilities whom they provide with in-kind support or cash advances. CHAM facilities, on the other hand, receive their funds directly from the MoHP (rather than from districts). This assessment concludes that the organizational relationship between the MoHP, districts, and CHAM providers is more conducive for effective service delivery than the relationship between the MoHP, districts, and government providers. This holds important lessons for the overall organization of the health delivery system in Malawi. 4.3 Fiscal transfers to districts have been reliable. Fiscal transfers make up an important source of funding for districts. These have generally been reliable, which provides confidence at the district council level that planned activities could be implemented. While there is some evidence of delayed transfers and inter-sectoral borrowing of earmarked health funds, these factors were not found to be major bottlenecks to service delivery. 4.4 District councils have limited control and oversight over district health spending. Hiring decisions are made centrally, and salaries and wages are paid directly by the MoFEPD. Development spending is managed by the MoHP, while drugs are procured centrally and distributed to providers. Subsidies to CHAM providers are also managed by the MoHP. In this context, district councils and DHMTs have limited authority over spending. Further, as information systems are not well integrated, there is limited oversight on how funds are allocated and used, which undermines the stewardship position of district councils and DHMTs. Therefore, it is difficult to hold districts accountable for service delivery outcomes when they only control part of the funds. 4.2 Enhance Autonomy at Health Facility Level 4.5 Government hospitals and health centers have minimal or no financial and managerial autonomy. They are not recognized as spending units or cost centers in the chart of accounts and, as such, cannot formally receive government funds. While DHMTs are responsible for the management of funds (including accounting and reporting), service provision is delivered by health facilities. 16 Public Financial Management in the Health Sector 4. Discussion and Recommendations 4.6 CHAM facilities have greater financial and managerial autonomy. CHAM facilities receive funds directly and have the legal mandate to spend the funds. The amount of funds sent to CHAM facilities is relatively small such that the fiduciary risk is also low. The government could also follow suit by allowing direct disbursement of funds to the health facilities. 4.3 Make Spending More Flexible 4.7 Government spending is subject to rigid, input-based controls. While districts spend on behalf of government providers, this spending is subject to rigorous, input-based expenditure controls. This makes it difficult for districts to adjust spending to changing needs during the financial year, as is needed during health emergencies such as the COVID-19 outbreak. The rigid application of these controls also means that some goods and services provided may not be the ones required, which leads to inefficiencies. To get around this problem, some districts transact outside of the FMIS. This undermines good budget management practices and violates the Public Finance Management Act No. 7 of 2003. Therefore, there is need to balance control and flexibility of government spending. Some flexibility in spending is possible without undermining existing PFM systems. 4.8 CHAM providers have significantly more flexibility in spending. CHAM providers receive a global budget against which they spend. They do make plans, but there are no ex-ante commitment controls. As such, CHAM providers have more flexibility to react to changing needs. This flexibility does not constitute a significant fiduciary risk because large expenditure items such as salaries and wages must still go through controls, regardless of the situation. 4.4 Unify the Payment System 4.9 Development partners pay for a large share of health interventions. Government and CHAM facilities are severely resource constrained. Among the most widely referenced reason for poor quality and inefficiencies is that resources are insufficient to produce the desired outputs. Donors play an important role in Malawi and cover more than half of total health spending (see Annex 1). However, they are not well integrated with government systems, and generally do not finance service providers directly despite their essential role in service delivery. Instead, donor programs tend to be vertical creating the need for separate staffing, infrastructure, and financing arrangements. 4.10 Donor resources could have a significant impact on provider payments if they were well aligned. Tanzania offers an example of such an arrangement where donors finance a basket fund that pays for the operational expenditures of service providers. In Malawi, the HSJF could play a similar role, but development partners that pool resources through the HSJF are few and volume of funding is low. 4.5 Make Strategic Budget Allocations 4.11 Budget provisions are mostly input-based and do not reflect performance. Budget provisions are not strategic and do not incentivize efficiency or access. While ever providers lack autonomy, any discussion of strategic purchasing is superfluous. However, the way in which facilities receive their budget is an important element of strategic purchasing and should be reflected in discussions. Budget provision can mimic strategic purchasing concepts. For example, a budget can be allocated to service providers on the basis of volume, need, distance and other factors, including measures of performance. Public Financial Management in the Health Sector 17 4. Discussion and Recommendations 4.12 Performance allocations require facilities to be able to react to incentives. To do this, facilities need some autonomy, sufficient flexibility to make decisions, and stewardship over all financing sources. All these steps must be carefully initiated, and basic financial management capacity in accounting and reporting needs to be built. While performance considerations are important, it may be prudent to sequence such reforms once the basics are in place. The introduction of performance-based grants through the discretionary development budget could be a useful vehicle for this. 4.6 Recommendations (i) Give district administrations control over a greater share of resources. While this is part of the long- term decentralization agenda, progress can be made in the meantime by sharing information and improving integration of available information systems such that administrators have a full picture of available funding. (ii) Carefully monitor release of fiscal transfers. Fiscal transfers to districts are generally provided as budgeted. However, given the weak macro-fiscal environment, there is a risk of slippage and financing delays. It is important that the release of funds is carefully monitored to address any potential shortcomings. (iii) Strengthen the oversight capacity of community local governance structures. This could be seen as a natural extension of the facility boards under the approved central facility autonomy reforms, taking into account that the decentralization policy and Act already provide for the establishment of community development structures. There are lessons from the education sector that could be drawn on as part of this move. (iv) Provide clarity on roles and responsibilities of facilities and district management. The roles and responsibilities of facilities and DHMTs should be articulated and budgets should be aligned accordingly. For example, it may be desirable that DHMTs determine a global budget but have a dedicated budget for their own supervision, quality control and outreach services. (v) Recognize facilities as spending units. Government facilities should be able to receive and spend funds. This could either be done through introducing facilities in the administrative segment of the chart of accounts or through the provision of a global budget through block grants to cover the cost of their operations. A shadow budget can continue to be used to purchase drugs from the CMST. This will address various accountability and efficiency concerns. (vi) Support equity and quality considerations during the budget formulation process. A global budget envelope to facilities or health centers should be determined with an explicit consideration for equity and quality. (vii) Enhance flexibility of spending for providers at all levels of the district health system. Government financial management processes require ex-ante commitment control. All spending routed through the FMIS is checked for appropriateness and aligned to the budget. It may not be meaningful to have the same degree of appropriations control enforced to small service providers as exists for the rest of government. Health needs change frequently and as such, devolving spending authority to providers is a necessary first step. However, this should be accompanied by adequate rules and processes outlining how funds can be spent. Lessons can be learnt from CHAM facilities where accounting and reporting happens on an ex-post basis. Global budgets could be considered for government facilities including investments in accounting and reporting capacity. 18 Public Financial Management in the Health Sector 4. Discussion and Recommendations (viii) Encourage donors to align with government systems. Fragmented donor support can undermine the provider payment system. The government should make provisions that enable funds to be pooled from multiple sources to purchase a package of essential health services from providers in a unified manner. (ix) Ensure that ongoing investments into the FMIS provides an opportunity to improve service delivery. A dedicated donor module could be included to the FMIS to unify the payment structure across different levels of the healthcare delivery system. Should this not be possible in the short term, development partners could liaise with the MoHP to develop a separate system that would allow for this. Whatever is developed should be fully integrated with the FMIS. (x) Reform the budget provision process by linking budget allocations explicitly to population, need, and the volume of services produced. While Malawi revised its equity-based formula for distributing financial resources from the center to the districts in 2019, this formula has not been fully applied. As such, distribution of public funds to the districts is based on historical precedence. Furthermore, within the districts, there is lack of clarity on the allocation of resources from the DHMTs to health facilities. Therefore, there is need to: (i) fully apply the 2019 district allocation formula, and (ii) develop and implement resource allocation frameworks to facilitate an equity-based distribution of resources to health facilities within the districts. Principles from results-based financing could be used to provide strategic budget allocations to providers. Similarly, SLAs could also include these provisions when CHAM providers are contracted. (xi) Ensure that services provided by CHAM facilities through SLAs are paid on time. Delayed payments can affect utilization especially for poor and vulnerable populations. (xii) Improve communication of budgetary releases. It is critical that funding sent from treasury to districts is communicated on time to all facilities, including remote ones, so that they can process requests for support in time and in line with their needs. (xiii) Build administrative capacity at the Area Development Committee level. This will provide effective administrative capacity to sectors at the community level where programs are implemented. It could involve creating senior administrative posts across management and accounting functions in each of the Areas Development Committees. In addition to strengthening community governance structures, this will further increase administrative efficiency of public service providers at the community level. With potential for facilities to receive funds from both the government and donors, such capacity can strengthen PFM integrity in the health sector. Public Financial Management in the Health Sector 19 REFERENCES ▪ Barroy, H., Dale, E., Sparkes, S. & Kutzin, J. 2018. 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Qualitative Research from Start to Finish Second Edition. New York: Guilford Publications Public Financial Management in the Health Sector 21 ANNEXES Annexes Annex 1: Overview of the Health Sector in Malawi Organization of the Health System Malawi’s public health system is organized into four levels: community, primary, secondary, and tertiary. These different levels are linked to each other through an established referral system. At community level, health services are provided at health posts, dispensaries, village clinics, and maternity clinics. At primary level, health services are provided at health centers and community hospitals. Health centers offer outpatient and maternity services and are meant to serve a population of up to 10,000. Community hospitals are larger than health centers, with a bed capacity of up to 250, and they conduct minor procedures. The secondary level of care consists of district hospitals and CHAM hospitals of equivalent capacity. They provide referral services to health centers and community hospitals and also provide their surrounding populations with both outpatient and inpatient services. The tertiary level consists of central hospitals that provide referral services to secondary level providers. In line with the National Decentralization Policy (1998) and the Local Government Act (1998), community, primary and secondary level care is overseen by local assemblies. DHOs oversee the district health system and are responsible to district commissioners who are the controlling officers of all public services at district level. Specifically, for PFM, district commissioners oversee all PFM arrangements within their respective districts. Additionally, they are mandated to oversee operations of development partners working in the health sector at district level. Health services in Malawi are provided by the public sector, private for-profit, and private not-for-profit providers. The public sector consists of providers under district councils, government ministries and departments, and parastatals. The private not-for-profit sector comprises of religious institutions, and other not-for-profit non- governmental organizations (NGOs). CHAM, a network of religious providers of healthcare, is the largest organization in this category. The private for-profit sector consists of private hospitals, clinics, laboratories, and pharmacies. Health services in the public sector are free of charge at the point of use except for some select services provided at central hospitals, where bypass fees and user fees are charged to patients. Private for-profit and not-for-profit providers, including CHAM, charge user fees at point of service provision. However, through SLAs with CHAM, the government has been able to provide free health services in remote and hard- to-reach rural areas where only CHAM health facilities are available. As such, CHAM is key to the achievement of UHC in Malawi. A study by Chirwa et al. (2013) concludes that SLAs have the potential to extend access to health care to vulnerable and underserved populations. Government is the single most important player in the provision of care in Malawi. As shown in Table A1.1, the government owns 52 percent of the total number of health facilities in the country followed by the private for-profit provider at 33 percent and CHAM at 15 percent. However, most health facilities owned by private for-profit providers are small and only cover a small volume of the urban-based population. Moreover, the government and CHAM own 63 percent of the total number of health centers and hospitals in the country, and it is at these facilities where a large proportion of the poor Malawians access health care. Furthermore, given that 85 percent of people in Malawi reside in rural areas, and that most of the health facilities managed by CHAM are located in rural areas, the volume of health services provided by CHAM is significantly more than what is provided by private for-profit providers. A health facility survey shows that government and CHAM facilities are generally more likely to offer all standard basic health services4 as compared to private for-profit provider 4 Basic client services include outpatient curative care for sick children, child growth monitoring, facility-based child vaccination services, any modern methods of family planning, antenatal care, and services for sexually transmitted infections. Public Financial Management in the Health Sector 23 Annexes (Government of Malawi, 2014). This is corroborated by a more recent study by the World Bank (2019a), which shows that CHAM and government facilities are more likely than private for-profit providers to provide delivery, child immunization, child nutrition, HIV care and support, and TB services. In addition, government and CHAM providers are more likely to provide diagnosis and management services for cardiovascular and chronic respiratory diseases, and cervical cancer than private for-profit providers (ibid). Table A1.1: Distribution of Health Facilities in Malawi by Ownership  Facility Type Ownership Hospital Health Center Health Post Dispensary Total Share Government 50 387 89 49 575 52% CHAM 41 116 6 2 165 15% Private 10 344 1 11 366 33% Total 101 847 96 62 1106   Source: Author’s compilation from the Master Health Facility List (World Bank, 2019b). Note: Clinics are included under health centers Health Financing Malawi’s health sector is mainly financed by external development partners who contribute 58 percent of the total current health expenditure followed by the Malawian government at 24 percent, households at 13 percent, and employers and local NGOs at 5 percent (Figure A1.1). This implies that about 82 percent of total current health spending in the health sector comes from government and development partners, with the private sector making up a relatively small share (Government of Malawi, 2014a). With this in mind, the interplay in the governance of finances between government and donors at the point of service provision is particularly important. Since the 2013 ‘Cashgate’ scandal,5 most development partners have opted to provide funding to the health sector through vertical programs and projects. By the 2017/18 fiscal year, about 74 percent of total donor funding to the health sector was off-budget (World Bank, 2020). Most donor funds are channeled through aid agencies and NGOs who use their own planning, financing, procurement, and monitoring systems. Use of vertical programs and parallel systems has undermined the government’s stewardship position and is a missed opportunity to improve Malawi’s PFM system. This practice also negates the five principles on aid effectiveness.6 With the withdrawal of on-budget support, the bulk of external health financing to the health sector has become uncoordinated and fragmented. Notwithstanding the above, the HSJF was set up in December 2015 as a way of pooling and better coordinating donor resources, with the ultimate goal of moving back to on-budget funding. However, this strategy has so far been ineffective as the share of donor financing going through the HSJF is insignificant. With declining on-budget support and inadequate government expenditures, improving the efficiency with which available resources are allocated and used has become a top priority for the Malawian government. Two key studies have informed its position on the future of health financing in Malawi. The first is a study by the World Bank on domestic resource mobilization for the health sector. This study revealed that there is limited fiscal space to accommodate additional and earmarked taxes for the health sector and recommended that the 5 In 2013, there was a high-level corruption scandal in which an estimated US$32 million was stolen from Government coffers. This scandal is commonly referred to as the “Cashgate” scandal. The Cashgate scandal has eroded donor confidence and trust in the Government system and is now the main reference point for corruption in Malawi. http://www.economist.com/blogs/baobab/2014/02/malawi-s-cashgate-scandal. 6 In line with the Paris Declaration on Aid Effectiveness, the five principles that make aid more effective are: Ownership, Alignment, Harmonization, Managing for Results, and Mutual Accountability. Several donors that operate in Malawi are signatories to the Paris Declaration on Aid Effectiveness. For more information see https://www.oecd.org/dac/effectiveness/34428351.pdf 24 Public Financial Management in the Health Sector Annexes Figure A1.1: Composition of Total Health Expenditure in Malawi 80% 14% 70% 12% Households and Employers Donors and Government 60% 10% 50% 8% 40% 6% 30% 4% 20% 10% 2% 0% 0% 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Donors Government Households Employers/Local NGOs Source: Authors’ construction from Malawi National Health Accounts (MoHP, 2020). government should focus on generating efficiency savings to finance its UHC agenda (Chansa et al., 2018). The second study, which was financed by the German Development Cooperation, assessed the feasibility of raising revenue through the introduction of a national health insurance scheme, but advised against this in view of the country’s large informal sector and the expected high costs of operating the scheme (Gheorghe et al. 2019). The study recommended the introduction of a provider-purchaser split and management autonomy at the service delivery level to achieve efficiencies. In view of this strong evidence suggesting that there is limited scope for additional revenue from earmarked taxes and health insurance, reforms in the health sector have focused on areas where improvements can be achieved within the available fiscal space. First, a new memorandum of understanding between CHAM and the government was signed in 2016 to replace the 2006 agreement. This has enabled the country to expand coverage of essential health services to catchment populations served by CHAM without incurring capital expenses on construction of new health facilities in these areas. Under the agreement, the government provides salary grants and reimbursements for health services that CHAM facilities provide to communities where SLAs exist. In turn, communities in areas where only CHAM facilities exist access free health care for services under SLAs and at subsidized rates for non-contracted services. This arrangement with CHAM has helped to improve access to health care by poor Malawians. A set of reforms is also being implemented that aim to fully decentralize the management of health service provision to tertiary and district-level providers. At the tertiary level, the government recently approved the Central Hospital Autonomy Reform. This reform aims to increase efficiency of central hospitals by decentralizing their management from the MoHP and establishing central hospital boards to provide oversight. Another reform being implemented is the full decentralization of the district health system by devolving all district-level functions performed by central-level institutions to district councils. Health Status Over the past two decades, health and nutrition outcomes in Malawi have improved. Under-5 mortality, for example, has reduced significantly from 173 to 44 deaths per 1,000 live births between 2000 and 2018 (Table A1.2). The rate of decline in under-5 mortality rate is way better than the averages for low-income countries Public Financial Management in the Health Sector 25 Annexes and sub-Saharan Africa (Figure A1.2). Similarly, evidence on maternal health shows substantial improvements. However, Malawi is still lagging behind in some key health and nutrition indicators such as prevalence of stunting among children under-5, HIV, and malaria. The underlying causes of childhood stunting in Malawi are associated with factors that children are exposed to at individual, household, and community levels. For instance, poor maternal, child health and nutrition outcomes in Malawi could be attributed to the high adolescent fertility rate, which is much higher than the averages for low income countries and sub-Saharan Africa (Table A1.2). Nearly one in every three adolescent girls aged between 15 and 19 years in Malawi has already begun childbearing, with pregnancies among adolescents contributing about 29 percent of all deliveries in Malawi (NSO and ICF, 2017). Given that most of these adolescents are undernourished and that their bodies are not fully developed, they are predisposed to delivering low birth weight babies. This increases the number of neonatal deaths, which accounts for 47 percent of the total number of under-five deaths in Malawi. Further, about 15 percent of all the maternal deaths in Malawi are from adolescent girls (ibid). Table A1.2: Key Health Outcome Indicators Malawi Indicators LIC SSA 2000 2010 2016 2018 Life expectancy at birth, total (years) 45.1 55.6 62.7 63.8 63.5 61.3 Adolescent fertility rate (births per 1,000 women ages 15-19) 158 148 135 132 94 101 Maternal mortality ratio (per 100,000 live births) 749 444 358 349 462 534 Mortality rate, infant (per 1,000 live births) 99.8 53.2 35.3 32.1 49.2 53.0 Mortality rate, neonatal (per 1,000 live births) 38.7 28.2 21.9 20.4 27.2 28.0 Mortality rate, under-5 (per 1,000 live births) 172.6 84.9 50.0 43.9 69.9 78.1 Prevalence of stunting, height for age (% of children under 5) 54.7 47.3 38.3 39.0 34.8 33.5 Prevalence of HIV, total (% of population ages 15-49) 14.4 10.6 9.7 9.2 2.0 3.8 Prevalence of anemia among children (% of children under 5) 74.4 64.8 59.2 59.2 59.9 Incidence of tuberculosis (per 100,000 people) 386 310 193 181 206 231 Incidence of malaria (per 1,000 population at risk) 427 386 211 214 191 219 Source: Authors’ calculations from the World Development Indicators LIC = Low-income country; SSA = Sub-Saharan Africa Figure A1.2: Rapid Decline in Under-5 Mortality per 1,000 live births in Malawi 300 250 Deaths per 1,000 live births 200 150 SSA , 78 LIC , 70 100 50 Malawi , 44 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Malawi LIC SSA Source: Authors’ calculations from the World Development Indicators. LIC = Low-income country; SSA = Sub-Saharan Africa (excluding high income) 26 Public Financial Management in the Health Sector Annexes Annex 2: Performance of Malawi on Public Financial Management PFM relates to a government’s ability to implement policy whilst maintaining a fiscally prudent and sustainable position. An assessment of Malawi’s overall PFM system was done in 2018 (Government of Malawi, 2018b). It provides a detailed overview of all major PFM functionalities across the budget cycle. Across the majority of dimensions assessed, the country’s PFM performance received a score of ‘C’ suggesting that significant gaps remain. That said, policy-based budgeting (Pillar III) and external scrutiny and audit (Pillar VII) appear to be performing somewhat better, scoring ‘B’ and ‘C+’ respectively (Figure A2.1). Malawi improved in terms of budget credibility since the 2011 PEFA assessment (Figure A2.2), though it still sits at the bottom quartile and far from the median. While aggregate outturn performs quite well with little actual expenditure deviating within less than 10 percent of the original budget, the budget is very unreliable across government functions, which pulls down the aggregate score. There has been a significant deterioration in terms of comprehensiveness and transparency, where Malawi scored well above the median in 2011, but has fallen to an average of ‘C’ at the bottom quartile. This follows a deterioration of timeliness and completeness of financial monitoring and reporting. Policy-based budgeting has seen improvements, in part due to the implementation of the medium-term expenditure framework and improvements in the timely approval by the National Assembly of appropriation bills. With regards to predictability and control in budget execution, Malawi has fallen below the median, largely due to the fact that procurement processes remain uncompetitive and outdated. There has also been poor progress on FMIS reforms where the procurement of a new system has stalled, and updates to the Epicor legacy system have not been implemented. Accounting and reporting have improved somewhat, however from a very low base. Big improvements in external scrutiny and audit have been noted following more timely submissions of budget proposals to the National Assembly and improved responses to recommendations from the Parliamentary Accounts Committee. Figure A2.1: Malawi PEFA Scores, 2018 Figure A2.2: PFM in Malawi in International Perspective 1,000 live births in Malawi 1,000 live births in Malawi Pillar I A A B+ B Pillar VI Pillar II B MW’18 C MW’11 MW’11 D C+ MW’11 MW’18 MW’18 MW’18 C MW’18 MW’18 MW’11 Pillar V MW’11 Pillar III D+ MW’11 D Pillar IV Pillar I Pillar II Pillar III Pillar IV Pillar V Source: Authors, based on data received from the PEFA Secretariat. Note: Pillar I = Credibility of the Budget; Pillar II = Comprehensiveness and Transparency; Pillar III = Policy Based Budgeting; Pillar IV = Predictability and Control in Budget Execution; Pillar V = Accounting, Recording, and Reporting; Pillar VI = External Scrutiny and Audit. Public Financial Management in the Health Sector 27 Annexes Figures A2.1 and A2.2 provides a summary assessment of Malawi’s performance on PFM based on prior assessments, and in comparison with other countries. Figure A2.1 provides averages of the 2018 assessment while Figure A2.2 compares the scores from Malawi to that of all other assessments conducted until March 2019. The PEFA scores were translated into numerical values and averages derived from a 1-4 scale where a ‘D’ is equivalent to a 1 and an ‘A’ equivalent to a 4, following PEFA Secretariat guidance and De Renzio (2009). To allow comparison across countries and years, the 2016 methodology was mapped into the 2011 methodology. The results show that there has been some progress in PFM in Malawi, but in many cases this appears to have served form rather than function, as observed by the World Bank (2016). A paper on Malawi’s institutional reform by Bridges and Woolcock (2017) also came to the same conclusion. The remainder of this chapter provides an in-depth review of how the existing PFM processes are performing with regards to fiscal management, strategic allocation of resources, and operational efficiency (Schick, 1998). Fiscal management. Fiscal deficit targets have been met in recent years, following a credible budget and realistic aggregate revenue projections. This is an improvement from previous years, where there had been significant deviation and the deficit was not in line with the fiscal framework proposed prior to the fiscal year (Figure A2.3). However, some risks remain as financial performance of extra-budgetary units is subject to limited monitoring. There is also continued prevalence of expenditure arrears, as well as inadequate monitoring and reporting of fiscal risks from public corporations where deficits may build up and to which loan guarantees have been issued (Government of Malawi, 2018b). Furthermore, even though the current FMIS has sufficient budget controls in place, these are insufficiently applied, as transactions are frequently routed outside of the system (World Bank, 2016). Strategic allocation of resources. Integrated policy, planning, and budgeting is fundamentally about having expenditure programs that are driven by policy priorities and disciplined by budget realities. The Government of Malawi introduced program-based budgeting in the 2016/17 fiscal year, following pilots in the previous year. Given this move is relatively new, it remains too early to assess how well it supports the strategic allocation of resources. There are concerns, however, about how outputs are defined, and during implementation, the PFM system does not provide controls at the line item-level. A further indication of whether resources are allocated strategically is whether budgets (according to the annual budget law) are reflected in actual outturns by government function. The composition variance in the 2018 PEFA assessment was considerate, ranging from 9 percent to 32 percent (Table A2.1). While there was overspending by 22 percent on public affairs and safety, for example, social sectors such as health and education were unable to fully execute their budgets by 12 and 16 percent, respectively. This is despite their high reliance on human resources, which generally drives budget performance up. Development expenditures were also under-executed by about 13 percent. Figure A2.3: Budget Performance and Historical De cit Deviation, (MK Millions) 200 2014/15 2015/16 2016/17 Percent Deviation 150 Approved 746,122 922,490 1,145,752 100 budget 50 Executed 922,490 894,634 1,121,181 budget 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Outturn 103.4% 97.0% 97.9% Deviation (Actual/Planned Deficit) Actual Deficit (Planned Deficit) Source: Annual Economic Reports and Financial Statements 2014-2018; World Bank (2016). 28 Public Financial Management in the Health Sector Annexes Some votes and economic items show consistent over- or under-performance from year to year, which suggest that such budgets are unrealistic or not respected. This fundamentally undermines strategic allocation of resources. The budget may well be formulated taking equity into account, for example, but if not respected may have an inequitable turnout. While the implementation of the medium-term budget planning system should support strategic allocation, unreliable annual budget outturns and lack of reconciliation fundamentally undermine this effort and may lead to a situation where the budget is de-facto reformulated as it is released. Further, not releasing funds when they have been allotted is likely to lead to the accumulation of arrears, which can undermine the implementation of planned programs and activities. Table A2.1: Budget Composition Variance Composition variance 2014/15 2015/16 2016/17 …by functional classification 27.1% 32.3% 21.3% …by economic classification 16.3% 11.8% 9.3% Source: Government of Malawi (2018); Annual Economic Reports and Financial Statements 2014-2018 Operational efficiency. Among the most pressing operational efficiency concerns is procurement management. In the 2018 PEFA assessment, procurement management was given a ‘D+’ which is the lowest possible score in the evaluation matrix. Key gaps identified by the assessment include: lack of databases at procurement entities, insufficient clarity on how contracts are awarded, and inadequate provision of key information on procurement to the public (Government of Malawi, 2018b). A summary of the assessment is provided in Table A2.2. Table A2.2: PEFA Assessment of Procurement Management Indicators/Dimension Score Brief Explanation PI-24 Procurement D+ Dimension scores combined by method M2 (average) D There are no comprehensive databases available in procuring entities 24.1 Procurement monitoring at the Office of the Director of Public Procurement D* No data is available on which to judge the extent to which various 24.2 Procurement methods procurement methods are used to award contracts D Key procurement information is not made available to the public beyond 24.3 Public access to legislation in the Government Gazette and bidding opportunities in procurement information newspapers 24.4 Procurement complaints B The procurement complaint system meets criterion one (independence of management review committee) and three of the other criteria Source: Government of Malawi (2018b). Public Financial Management in the Health Sector 29 Annexes The accumulation of arrears, as mentioned above, also tends to lead to high financing costs for suppliers and, as a result, can increase prices on government procurement. Expenditure arrears and the capacity of government to manage arrears was given a ‘D’ in the 2018 PEFA assessment. A large share of the total expenditure arrears pertains to civil works and goods, though significant build up is also seen in services and pharmaceuticals (Table A2.3). The Epicor FMIS system has full commitment control functionality, but as transactions are frequently routed outside it (World Bank, 2016), commitment control cannot be applied. This contributes to the accumulation of arrears. Table A2.3: Expenditure Arrears to Suppliers of Goods and Services (2017), MK billions Goods or Services Amount on Amount Direct Total Amount Verified Amount Not Treasury List to the National Arrears and Certified Certified Authorizing Office Goods 118.5 4.6 123.2 95.5 27.7 Services 33 2.8 35.8 20.4 15.4 Civil Works 115.3 26.2 141.5 73.2 68.3 Pharmaceuticals 16  - 16 10.4 5.6 Total 282.9 33.7 316.5 199.5 117 Source: Government of Malawi (2018b). On the upside, there have been improvements with regards to follow up of audit recommendations, though from a low base. Coverage of the treasury single account also appears to be quite high, with most of government making use of it leaving little opportunity for the accumulation of idle balances. In this respect, Malawi scores significantly better than regional peers such as Zambia, Zimbabwe, or Ghana (Hashim and Piatti- Fünfkirchen, 2016). 30 Public Financial Management in the Health Sector Annexes ANNEX 3: DISTRICTS AND HEALTH FACILITIES VISITED The survey was carried out in six districts and covered six district councils and DHOs; and 10 hospitals and seven health centers managed by the government and CHAM (Table A3.1). Out of the 17 health facilities visited, seven hospitals and five health centers were managed by the government and the remaining three hospitals and two health centers by CHAM (Table A3.2). Managers and health providers at the selected district councils, DHOs, hospitals, and health centers were interviewed. A total of 95 interviews (including completion of the PFM questionnaires) were successfully conducted. These were: 12 at district councils, 27 at DHOs, 32 at hospitals, and 24 at health centers (Table A3.3). For hospitals, the DHMT functions as management for the hospital as well as overseers of the district health system. As such, the interviewees for the district health office questionnaire also answered questions on the hospital questionnaire. Table A3.1: Districts and Institutions Visited   District District health Hospitals Health centers councils offices Government CHAM Government CHAM Dedza 1 1 1 1 1 0 Karonga 1 1 1 1 1 0 Salima 1 1 1 0 2 0 Mangochi 1 1 1 0 1 1 Thyolo 1 1 1 0 0 1 Lilongwe 1 1 2 1 0 0 Total 6 6 7 3 5 2 Source: Authors. Public Financial Management in the Health Sector 31 Annexes Table A3.2: Health Facilities Visited by Managing Authority District Facility Type of facility Managing Authority 1.      Dedza District Hospital Government Dedza 2.      Mua Hospital CHAM 3.      Golomoti Health Center Government 1.      Karonga District Hospital Government Karonga 2.      Chilumba Health Center Government 3.      Atupele Rural Hospital CHAM 1.      Salima District Hospital Government Salima 2.      Lifuwu Health Center Government 3.      Chipoka Health Center Government 1.      Mangochi District Hospital Government Mangochi 2.      Nkope Health Center CHAM 3.      Lungwena Health Center Government 1.      Thyolo District Hospital Government Thyolo 2.      Thomas Health Center CHAM 1.      Bwaila District Hospital Government Lilongwe 2.      Nkhoma Hospital CHAM 3.      Kabudula Hospital Government Source: Authors. Table A3.3: Summary of Interviews Conducted by Institutions Visited District Hospitals Health centers District District health Total councils Government CHAM Government CHAM offices Dedza 2 4 4 1 5 - 16 Karonga 3 5 5 2 3 - 18 Salima 2 6 6 - 7 - 21 Mangochi 2 2 2 - 4 2 12 Thyolo 1 5 5 - - 3 14 Lilongwe 2 5 6 1 0 0 14 Total 12 27 28 4 19 5 95 Source: Authors. 32 Public Financial Management in the Health Sector Annexes ANNEX 4: SUMMARY RESULTS AND METRICS Tables A4.1, A4.2, and A4.3 provide the individual scores for each criterion of the health service delivery goals at all stages of the budget cycle for all health facilities visited. These scores are provided by managing authority (i.e., government versus CHAM). The questionnaire for each of the three stages of the budget cycle is provided in Table A4.4. Table A4.1: Facility Scores at Budget Formulation Stage by Managing Authority Service Delivery Goals Criteria Government providers CHAM providers 1 D A 2 C B Efficiency 3 C A 4 D B Total Score D+ B+ 5 C C Equity Total Score C C 6 C B 7 C B Quality 8 C B Total Score C B 9 D A 10 D B Accountability 11 D C Total Score D B Public Financial Management in the Health Sector 33 Annexes Table A4.2: Facility Scores at Budget Execution Stage by Managing Authority Service Delivery Goals Criteria Government providers CHAM providers 12 C B 13 B A 14 B B Efficiency 15 B C 16 B A 17 B B Total Score B B 18 B A Equity Total Score B A 19 D A Quality 20 C A Total Score D+ A 21 C A 22 B A Accountability 23 B A Total Score B A Table A4.3: Facility Scores at Budget Evaluation Stage by Managing Authority Service Delivery Goals Criteria Government providers CHAM providers 24 C B Efficiency Total Score C B 25 D C Equity Total Score D C 26 B B Quality Total Score B B 27 C A Accountability 28 C A Total Score C A 34 Public Financial Management in the Health Sector Annexes Table A4.4: Assessment Matrix/Questionnaire by Budget Cycle PART A: Budget Formulation Service Delivery Phase Criteria A B C D Goal 1. Autonomous Dispensaries Dispensaries The district Districts makes spending and health and health makes most all allocation entity centers are centers decisions decisions recognized as make budget on behalf on behalf of autonomous allocation of facilities dispensaries spending decision over (facilities and health entities and non-wage retain some centers are given recurrent discretion over authority to allocations limited funds allocate funds such as user as needed fees or donor contributions) 2. Ceilings are Budget Notional, Facilities No ceilings communicated ceilings are but realistic, are given are provided communicated budget guidance to to facilities, well in ceilings are assume a and annual advance communicated percentage work plans allowing to providers increase from represent dispensaries in advance the previous a wish list and health of annual year rather than a centers work plan prioritized set to budget preparation of activities effectively Efficiency 3. Budget Actual budget Budget Budget Facility annual allocations allocations ceilings are ceilings are work plans are match plans closely imposed imposed not reflected in Budget resemble after annual after annual the final district Formulation facility plans work plans work plans council health have been have been budget developed; developed; and any and budget budget cuts cuts are made are done made without with adequate adequate facility facility consultation consultation 4. Unified There is a Facility Facility Facility budget across unified budget budgets budgets budgets are sources for all funding include include for government sources at the government, government, funding only facility level user fees (if user fees (if (government, any) and the any) and some donors, majority of donor funding insurance donor funding payments, internally generated revenue) 5. Budget Budget Budget Budgets are There is no allocations allocations to allocations are historic and semblance responsive to facilities are input-based input-based of equity in Equity equity responsive with some allocations with budgets, to equity adjustment for past regard to current or past considerations equity equity Public Financial Management in the Health Sector 35 Annexes Table A4.4: Assessment Matrix/Questionnaire by Budget Cycle (contd) Service Delivery Phase Criteria A B C D Goal 6. Adequate The budget The budget There are There are budget for allocation allocation significant major gaps quality process process gaps in in resource ensures provides the resource provision adequate majority of availability for affecting resources for needs for quality service quality service quality service quality service provision provision delivery provision 7. Activities The budget Activities are There are There prioritized for allocation prioritized significant are major quality process with some shortcomings shortcomings provides for a shortcomings in the in the well-prioritized prioritization prioritization set of activities process process to ensure during budget during budget Quality quality preparation preparation affecting service delivery quality 8. Adequate The budget The budget The mix of The mix of input mix for allocation allocation inputs does inputs is quality process process not support inefficient and provides an provides for quality of affects service adequate a reasonable service delivery mix of inputs mix of inputs delivery well quality (e.g. (including HR, staff available operational without and investment adequate budget) for supplies, etc.) quality service delivery Budget Formulation 9. Budgets Budgets are Facilities Facilities do Budgets are defied for defined for have defined not receive not defined for each provider each facility budgets for formal budgets each facility – funding basic – the budget they receive operational at the district in-kind support activities council level instead is pooled with loosely defined drawing rights 10. Provisions Service Budget Budget Budget reflect service delivery and provisions are provisions provisions are delivery financial informed by are mostly not related outcomes management performance, disconnected to provider are but not strictly from actual performance institutionally performance- service linked through based; delivery Accountability existing IT and ICT outcomes; infrastructure; infrastructure some and budget is available adjustments provisions to connect are made are reflective service based on of service delivery perceived delivery outcomes with performance; outcomes spending and ICT systems are not integrated 11. Facility plans Facility plans Facility plans Facility plans There are no reflected in are adequately are mostly are considered facility plans to budget reflected in reflected in the during district consider in the final budgets district budget budget district budget proposal or they are ignored 36 Public Financial Management in the Health Sector Annexes Table A4.4: Assessment Matrix/Questionnaire by Budget Cycle (contd) PART B: Budget Execution Service Delivery Phase Criteria A B C D Goal 12. Commitment Commitment Commitment Commitment Rigidities in controls are controls controls cause controls cause commitment adequate provide for moderate significant control mean necessary delays delays facilities cannot accountability adequately without creating react to bottlenecks changing to the flow of needs funds 13. Delivery of Facilities Facilities Facilities are Facilities do supplies are always know frequently know rarely aware of not know what predictable what supplies what supplies what supplies supplies have have been have been have been been ordered, ordered for ordered on ordered on when they will them, when their behalf, their behalf, receive them, they will receive when they are when they are or in what them, and in coming and in coming and in quantities what quantities what quantities what quantities 14. Execution Execution Execution Some execution There are too protocols are protocols protocols are protocols many execution harmonized across funding manageable across funding protocols sources are across funding sources cause across funding harmonized sources, significant sources, and and are not a causing delays this hinders big challenge insignificant service delivery delays Budget 15. No separate Funding Funding Funding Funding Efficiency Execution reporting sources do sources require sources require sources require requirements not require separate separate separate exist separate modalities of modalities modalities modalities of reporting with of reporting, of reporting, reporting limited effects which affects which pulls key on overall efficiency facility staff efficiency away from their service delivery duties 16. Budget re- Budget Budget Budget Budget lease is timely releases to releases are releases are releases to and communi- facilities are sometimes sometimes facilities are cated always on delayed, but delayed, and frequently time and facilities have this affects late leading communicated found a way service delivery to arrears to regularize and severely payments affecting service delivery 17. Execution Budget Budget Budget Budget processes execution execution execution execution are not too processes processes processes processes cumbersome are not are somewhat are somewhat are too cumbersome cumbersome cumbersome, cumbersome but do not and this affects for facilities affect service service delivery to execute delivery negatively efficiently severely Public Financial Management in the Health Sector 37 Annexes Table A4.4: Assessment Matrix/Questionnaire by Budget Cycle (contd) Service Delivery Phase Criteria A B C D Goal 18. Releases are Budget Budget Budget Budget equitable and releases to releases are releases are releases to follow plans facilities are planned with somewhat facilities are well planned some evidence opportunistic, opportunistic Equity and equitable of equity with some and informed evidence of by political equity considerations rather than need 19. Releases are Releases to Releases to Releases to Budget made in full facilities are facilities are facilities are releases are and do not always made sometimes often late generally undermine on time and in late or partial, or partial, unreliable quality full affecting affecting affecting service quality service quality the ability of facilities to ensure service quality Quality 20. Procurement Procurement Health Health There are no involves processes specialists are specialists provisions for health involve all sometimes are generally the contribution specialists relevant parties missing during absent during of health (including procurement procurement specialists health processes processes during specialists) and procurement actively control leading to for quality poor quality of service delivery Budget Execution 21. Execution Facilities do not Facilities mostly Facilities Execution protocols are find challenges execute within frequently protocols are intuitive executing the given execution bypass generally not budget within protocols execution followed due given execution protocols to to excessive protocols streamline rigidities processes leading to accountability concerns and the accumulation of arrears 22. No excessive Facilities do Facilities Facilities do Facilities have rigidities of not experience experience not experience a preference Accountability on-budget excessive rigidities in excessive for off-budget support exist rigidities in on-budget rigidities in financing due on-budget financing on-budget to the rigidity financing controls, but financing of on-budget controls ensure that all controls, financing finances use but still use controls on-budget off-budget systems financing extensively 23. Reliable Facilities Facilities Facilities Facilities do and timely produce produce partial produce limited not account financial financial reports financial reports financial reports for or report on statements in a systematic and there are with significant resource use fashion some fiduciary fiduciary concerns concerns 38 Public Financial Management in the Health Sector Annexes Table A4.4: Assessment Matrix/Questionnaire by Budget Cycle (contd) PART C: Budget Evaluation Service Delivery Phase Criteria A B C D Goal 24. Evaluation Evaluation/ Facility Facility There is no data is performance budgets and budgets and strategic used for data is used purchasing purchasing purchasing purchasing/ for purchasing/ are mostly are mostly (facility budget budget based on historically budgets are Efficiency provisions provisions performance, based, allocated on with some with some a historical historical performance basis and considerations considerations not based on performance) 25. Evaluation Budget Budget Budget Budget considers evaluation is evaluation is mostly evaluation equity compliance- processes compliance- is entirely concerns and provide some driven compliance- Equity performance- guidance for driven driven, taking population account of needs population adjustments needs 26. A reward/ An adequate Some useful Most budget Budget sanctions reward/ measures are evaluation is evaluation system is sanctions in place that compliance- is entirely Budget in place to system is in are applied to driven with compliance- Quality Evaluation encourage place and address quality limited attention driven quality is utilized to quality in effectively performance reviews 27. District There are clear Most use It is challenging It is not management processes of funds to understand possible to can be held in place to procured in what support determine accountable hold district bulk at district districts how facilities for facility use management level can be provided to distribute in- of funds/in- accountable for traced to which facilities, kind support to kind support use of funds at facility use and resulting in an facilities the facility level accountability accountability established gap Accountability 28. Transaction There is There is a There is a Insufficient data are a clear, good process process for integrity in captured well established for capturing capturing capturing process for and reporting and reporting and reporting capturing transactions, transactions, transactions and reporting but it has some but it is not undermines transactions gaps adequate budget for budget evaluation and evaluation and accountability accountability Public Financial Management in the Health Sector 39