PATHWAYS TO REDUCE HOUSEHOLD OUT-OF-POCKET EXPENDITURE DISCUSSION PAPER AUGUST 2020 Maria Eugenia Bonilla-Chacin Md. Rafi Hossain Md. Shahadt Hossain Mahmud Md. Nurul Amin Mohammad Abul Bashar Sarker Muhammad Anwar Sadat Subrata Paul Shakil Ahmed Tahmina Begum Owen Smith Anurag Kumar / Pathways to Reduce Household Out-of-Pocket Expenditure Maria Eugenia Bonilla-Chacin, Md. Rafi Hossain, Md. Shahadt Hossain Mahmud, Md. Nurul Amin, Mohammad Abul Bashar Sarker, Muhammad Anwar Sadat, Subrata Paul, Shakil Ahmed, Tahmina Begum, Owen Smith and Anurag Kumar August 2020 Health, Nutrition, and Population (HNP) Discussion Paper This series is produced by the Health, Nutrition, and Population Global Practice of the World Bank. The papers in this series aim to provide a vehicle for publishing preliminary results on HNP topics to encourage discussion and debate. 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Because the World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. “Pathways to Reduce Household Out-of-Pocket Expenditure” Maria Eugenia Bonilla-Chacin,a Md Rafi Hossain,b Shahadt Hossain Mahmud,c Md. Nurul Amin,d Mohammad Abul Bashar Sarker,e Muhammad Anwar Sadat,f Subrata Paul,g Shakil Ahmed,h Tahmina Begum,i Owen Smith,j and Anurag Kumar,k. a Lead Economist, Health, Nutrition, and Population Global Practice, World Bank, Washington DC, United States. b Fiduciary Specialist, Health, Nutrition, and Population Global Practice, World Bank, Dhaka, Bangladesh c Director General, Health Economics Unit, Ministry of Health and Family Welfare, Dhaka, Bangladesh. d Director (Research), Health Economics Unit, Ministry of Health and Family Welfare, Dhaka, Bangladesh. e Upazila Health and Family Planning Officer, Health Economics Unit, Ministry of Health and Family Welfare, Dhaka, Bangladesh. f Deputy Director, Health Economics Unit, Health Services Division, Ministry of Health and Family Welfare, Dhaka, Bangladesh g Focal Person (BNHA and PER), Health Economics Unit, Ministry of Health and Family Welfare, Dhaka, Bangladesh. h Senior Economist, Health, Nutrition, and Population Global Practice, World Bank, Dhaka, Bangladesh. I Consultant, Health, Nutrition, and Population Global Practice, World Bank, Dhaka, Bangladesh. j Senior Economist, Health, Nutrition, and Population Global Practice, World Bank, New Delhi, India. k Consultant, Health, Nutrition, and Population Global Practice, World Bank, Washington DC, United States. Abstract: The study aims at providing an overview of different pathways for Bangladesh to reduce its high household out-of-pocket (OOP) expenditures to improve financial protection and further progress towards universal health coverage. Reducing household OOP payments would require first and foremost an increase in public funds. Increasing mandatory pre-paid and pooled funds in Bangladesh, over the short to medium term, will necessitate a moderate increase in the share of Government expenditure allocated to health, since Bangladesh allocates a much smaller share of the government budget to health than countries of similar income level. Reallocation is politically challenging but could offer the biggest potential source of fiscal space for health, larger than the space that economic growth can bring. How those additional resources are used, is also important to improve financial protection. Improving the readiness of the public health care network to provide quality care, particularly at primary health care level, could reduce the use of alternative providers, thereby reducing the need for OOP payments. Ensuring the functionality of community clinics, union level facilities, and upazila health complexes, including a revision of their opening hours would also contribute towards this goal. Ensuring access to pharmaceutical products, particularly for essential NCD-related drugs, at affordable prices could also contribute to a reduction in households OOP payments. In addition to these supply-side interventions, the Government could consider demand-side programs where resources follow the patient. For instance, given the large needs and the little resources available, an important pathway to reduce OOP payments while decreasing inequalities would be better targeting public subsidies to the poor and vulnerable. Finally, improving public financial management, policies, and governance will also contribute to the effective use of existing and any additional resources for health. Keywords: Bangladesh, out-of-pocket expenditure, financial protection, domestic resource mobilization Disclaimer: The findings, interpretations, and conclusions expressed in the paper are entirely those of the authors and do not represent the views of the World Bank, its Executive Directors, or the countries they represent. Correspondence Details: Maria Eugenia Bonilla-Chacin (mbonillachacin@worldbank.org) and Md Rafi Hossain (mhossain27@worldbank.org). TABLE OF CONTENTS ACKNOWLEDGEMENTS ........................................................................................................................ 6 A. INTRODUCTION ............................................................................................................................ 7 B. CONTEXT ....................................................................................................................................... 7 C. INCREASING PUBLIC EXPENDITURE ON HEALTH-COMPULSORY PRE-PAID AND POOLED FUNDS:.................................................................................................................................... 17 E. IMPROVING PUBLIC FINANCIAL MANAGEMENT, POLICIES AND GOVERNANCE ..... 32 G. REFERENCES ............................................................................................................................. 38 ACKNOWLEDGEMENTS This paper was prepared by a team comprising staff from the Health Economics Unit, Health Services Division, Ministry of Health and Family Welfare (MOHFW) of the Government of Bangladesh (Md. Shahadt Hossain Mahmud, Md. Nurul Amin, Mohammad Abul Bashar Sarker, Muhammad Anwar Sadat and Subrata Paul) and from the World Bank (Maria Eugenia Bonilla-Chacin, Md Rafi Hossain, Shakil Ahmed, Tahmina Begum, Owen Smith, and Anurag Kumar). The authors are deeply appreciative of the guidance they received from Mercy Tembon, Country Director for Bangladesh and Bhutan. E. Gail Richardson (Practice Manager, World Bank) provided valuable guidance and feedback. Finally, the authors would like to thank World Bank peer reviewers Caryn Brendenkamp and Patrick Eozenou for their comments. The authors are grateful to the World Bank for publishing this report as a HNP Discussion Paper. “PATHWAYS TO REDUCE HOUSEHOLD OUT-OF-POCKET EXPENDITURE” A. INTRODUCTION The importance of progressing towards Universal Health Coverage (UHC) goes beyond improvements in health as it also contributes to inclusive and sustainable economic growth. Investing in UHC, a condition where the population has access to quality health services when in need without facing financial hardship, fosters human capital, reduces poverty and inequality, increases productivity of the labor force and their mobility, and can also have other wider benefits to the economy (World Bank, 2019b). Bangladesh has made significant progress in one important aspect of UHC, that of coverage of health services, but not in terms of financial protection, reducing its potential for population wellness and economic growth. There are two key aspects of UHC: i) quality services for all when in need; and ii) financial protection in case of illness. The country made major progress in coverage of essential health services during the Millennium Development Goals era. However, it still remains an outlier in terms of financial protection. The largest source of health financing in Bangladesh is household OOP spending, which is, by definition, not pre-paid or pooled. About two-thirds of expenditure on health in the country is financed by households OOP. This is one of the highest shares in the world, much higher than the average in countries of similar income. Pre-paid and pooled funds, which are included in the government budget and financed through general government revenue, constitute only about a quarter of Bangladesh’s total health expenditures. This large share of health expenditures financed through OOP payments increases households’ risk of financial hardship and even impoverishment in case of illness. According to the WHO and World Bank 2019 Financial Protection Monitoring Report, Bangladesh is one of the countries in the world with the highest share of the population that has incurred catastrophic health expenditure. A quarter of the population spent more than 10 percent of household consumption on health care and as many as 10 percent spent as much as a quarter of its total consumption on health. The data shows that about 7 percent of the population had OOP expenditures in 2016, that forced them into poverty or deeper into it. High household OOP spending not only increases the risk of financial hardship in case of illness but also prevents households from seeking care when in need. In 2016, as many as 16.4 percent of the population that reported an illness, did not seek care because the treatment cost was too high; the most common response after those that did not seek care because the issue was not that serious (HIES, 2016). Against this background, this study aims at providing an overview of different pathways for the country to reduce its high level of household OOPs to improve financial protection and further progress towards UHC. The study first provides an overview of the country’s progress towards the health-related SDGs, and particularly progress in coverage of essential health services and financial protection. Since reducing financial protection implies increasing mandatory pre-paid and pooled funds that are based on the ability to pay, the paper first details different options to increase fiscal space, and particularly options to increased pre-paid and pooled funds. This is followed by a discussion of different policies on how best to use additional funds to more effectively reduce OOP payments and improve financial protection. The last section includes a short discussion on financial management challenges that might reduce options to mobilize additional funds for health or might make difficult the implementation of policies to reduce OOP payments. Lastly, this section also offers recommendations to overcome these challenges. B. CONTEXT Bangladesh has made significant improvements in health, but several challenges remain, and new ones are emerging Forty-seven years after independence, 2018 was a milestone year for Bangladesh, when it met the eligibility criteria for a middle-income country. Bangladesh has made significant progress in economic growth reporting more than 7 percent GDP growth rate for three consecutive years with a projected growth of 8 percent in fiscal year 2019, driven mostly by manufacturing and construction. This broad-based growth more than halved poverty from 48.9 percent in 2000 to 24.5 percent in 2016 (World Bank, 2019a). Overall public debt is estimated at 32.8 percent of GDP in FY19 as both external and domestic debt levels rose modestly, a level that remains manageable by international standards. The recently completed joint debt sustainability analysis by the World Bank and IMF reconfirmed Bangladesh’s low risk of debt distress while highlighting the importance of stronger revenue mobilization, improving external competitiveness and prudent choice of financing options. Bangladesh has also made significant improvements in its health outcomes. Over the last decades, health outcomes such as total fertility rate (Figure 1) and under five mortality rate (Figure 2) improved at a faster pace than those in most countries in the region (Figure 1). The country made large progress in achieving the health-related Millennium Development Goals (MDGs). Maternal mortality ratio declined from 399 to 176 per 100,000 livebirths between 2000 and 2015, and the under-five mortality rate decreased from 133 to 46 per 1,000 livebirths around the same period. 1 Life expectancy at birth increased from 65 in 2000 to 72.8 years in 2017 (WB, World Development Indicators). There was progress towards achieving some of the health-related Sustainable Development Goals (SDGs). The child related indicators, namely - under- five mortality rate (31 per 1,000 live births) and neonatal mortality rate (NMR) (17 per 1,000 live births) have already reached their 2020 targets (Ministry of Planning, 2018). Figure 1. Total Fertility Rates, South Asian Countries 1990-2015 Total Fertility Rate, 1990 - 2015 7 Total fertility rate (births per 6 5 woman) 4 3 2 1 0 Bangladesh India Nepal Pakistan Sri Lanka 1990 2000 2010 2015 Source: World Bank World Development Indicators 1 Data on Maternal Mortality from UN estimates (1990-2015) and BDHS for under five mortality (1993-2014) as shown in: http://103.247.238.81/webportal/pages/index.php#Under_5_mortality_rate Figure 2: Under five mortality rate, South Asian Countries 1990-2015 Under-5 mortality rate, 1990 - 2015 200 Under-5 mortality rate per 150 1000 live births 100 50 0 Bangladesh India Nepal Pakistan Sri Lanka 1990 2000 2010 2015 Source: World Bank World Development Indicators These improvements in health outcomes have partly been achieved due to increases in coverage of basic health services. The proportion of fully immunized infants rose from 70 to 78 percent between 2004 and 2014, while the proportion of married women using modern contraceptive methods increased from 47 to 54 percent. At the same time, coverage of antenatal care (ANC) increased substantially from 56 percent in 2004 to 78 percent in 2014, while ANC from a physician increased from 31 percent to 56 percent in the same period (Bangladesh Demographic and Health Survey (BDHS), 2014). Despite this progress, Bangladesh needs to address some remaining challenges to improve the life and well-being of its population, that will likely require important public investments. The high rate of child malnutrition is worrisome; 36 percent of children under five were stunted in 2014 (BDHS, 2014). On average, coverage of basic services remains low. The Ministry of Health and Family Welfare (MOHFW) updated the Essential Health Service Package (EHSP) for its fourth Health, Population, and Nutrition Sector Programme (HPNSP, 2016-22). This package includes five core health services to be provided mainly at primary level at different levels of public health care facilities 2. This work estimated that on average only 20.4 percent of the population was covered by the EHSP (varying from 2.2 percent for female sterilization to 82.5 percent for BCG vaccination) in public facilities in 2016 (MOHFW, 2018). The costing analysis for the updated EHSP demonstrated that covering this 20 percent of Bangladesh’ population in 2016 costed an equivalent of 71 percent of government’s health expenditure that year. This implies that covering only around 30 percent of Bangladesh’s population will consume the entire government expenditure on health (MOHFW, 2018). Not only is coverage for some basic services low, but there remain also large socio- economic disparities in access to services (Figure 3), as well as disparities linked to geographic location. In addition, the health system is facing emerging challenges. Some of these are the increasing burden of non-communicable diseases (NCDs), emerging and reemerging diseases (for example, avian flu and TB), and the impact of climate change on health. In 2017, three of the five main causes of disability adjusted life years lost in Bangladesh were NCDs, the first of which were cardiovascular diseases; in contrast, in 1990, all five main causes of disease were infectious diseases and maternal, child and nutrition conditions (IHME, 2019). 2 These five core health services are: maternal, neonatal, child and adolescent health services; family planning; nutrition; communicable diseases; and noncommunicable diseases. Figure 3. Bangladesh coverage of selected health coverage indicators, by income quintile 100% 87% 90% 92% 83% Coverage level (in%) 80% 69% 70% 60% 46% 40% 34% 24% 15% 20% 0% All basic vaccinations Delivery in health facility Poorest 2nd 3rd 4th Richest Source: Bangladesh, BDHS 2014 Bangladesh health expenditure is low, and it is mainly financed by households’ out-of-pocket (OOP) payments Health expenditure in Bangladesh is low. In all years with available data, total current health expenditure in the country has been between half and two-thirds of the average in low-middle income countries (LMIC) and in the South Asia region (Figure 4). Figure 4: Current Total Health Expenditure as shared of GDP in Bangladesh, LMIC, and South Asia, 2000-2016 6 5.6 Current Health Expenditure (as % of 5.4 5 4 3 2.4 2.5 2.6 2.6 2.5 2.5 2.5 GDP) 2.2 2.3 2.3 2.4 2.3 2.4 2.2 2.2 2.0 2.0 2 1 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Bangladesh (Public) Bangladesh (Private) Lower-Middle Income South Asia Source: Analysis of the Global Health Expenditure Database, 2018 Note that this data does not include information on expenditure on investments, only current expenditure. Current health expenditure as share of Gross Domestic Product (GDP) in Bangladesh is the third lowest among the 186 countries registered in the WHO Global Health Expenditure Database (GHED, 2018). Health expenditure in 2016 was 2.4 percent of GDP, substantially lower than the South Asian and the LMIC average at 5.4 percent and 5.6 percent of GDP respectively (Figure 4). Both in per capita terms as well as a share of GDP, Bangladesh expenditure on health is an outlier, one of the lowest among LMICs in per capita terms at only US$ 34 in 2016, and one of the lowest in the world as share of GDP (Figure 5). Figure 5: Global comparison of total current expenditure on health per-capita and as percentage of GNI, 2016. Source: Analysis of WHO GHED, 2018. The health system in the country is mainly financed by private sources, public funds only finance a small share of total health expenditure. Most current expenditure on health in the country is done by households, the Government only finances a very small share of this expenditure (23 percent in 2015). In all years for which data is available, public expenditure on health only financed between 20 and 30 percent of total health expenditure (Figure 6). The country has one of the lowest public current expenditures on health (as a share of GDP) in the world, at approximately 0.47 percent compared to 2.8 percent in LMIC and 2.1 percent in the South Asian region (WHO, 2018). Figure 6: Global Comparison of Public Health Expenditure per capita in US$ and as share of GDP in 2016 Source: Analysis of WHO GHED, 2018. Note: These graphs only include data on total current expenditure on health; it does not include capital expenditure. As a share of total Government expenditure, current public expenditure on health is not only low but it has also been decreasing. In 2016, the Government spent 3.4 percent of its resources on health, compared to 5.1 percent in 2007. This expenditure is below that of LMIC as well as neighboring nations (Figure 7). The budget of the MOHFW has highlighted the decreasing importance given to health as is indicated in the declining health spending since 2016. For instance, Government’s allocation to MOHFW as a share of total Government budget declined by 0.3 percentage points between 2017-18 and the 2019-2020 budget. Figure 7: Government Current Health Expenditure as % of General Government Expenditure, 2005 - 2016 9 as % of general gov't expenditures General Gov't health expenditure 8 8.0 7 7.0 6 5.1 4.7 4.4 5 4.4 4.1 4.1 3.8 4.0 4 3.6 3.6 3.4 3.4 3 2 1 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Bangladesh Lower middle income countries South Asia Source: WHO Global Health Expenditure Database (GHED), 2018 The decreasing allocation of Government expenditure to health is not necessarily reflecting the poor execution of the budget. Figure 8 shows that although the execution rate of the MOHFW budget has largely varied since 2000, it has an increasing trend between 2000 and 2016, although less so in recent years. In addition, in absolute numbers, the actual level of funds executed by the Ministry has significantly increased in most years as shown in the graph, the actual expenditure increased approximately six times in nominal terms. Figure 8: Bangladesh Budget Execution Rate (%) and nominal budget (crore Taka) 2000-2016 14000 13559 95% MOHFW revised budget 12000 90% 10000 execution (%) Nominal crore Taka 87% 85% 8000 6000 80% 81% 4000 2363 75% 2000 0 70% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 MOHFW revised budget excluding pension MOHFW Revised budget execution Trend (MOHFW revised budget execution) Source: HEU PER 1997-2014, Data from MOF Budget Wing Note: This data includes both current and capital expenditure on health of the MOHFW Although public expenditure on health as a share of total Government expenditure has declined, robust economic growth has ensured that health expenditure has increased in absolute terms. Nominal health expenditure per capita (in current taka) has increased about 7-fold while real per capita expenditure (in constant taka), has only increased by approximately 2.5 times (Figure 9). Figure 9: Trends in MOHFW per capita expenditure on health, 2000-2018 1200 MOHFW Spending on Health 1014 (2000 value = 100) 1000 800 600 400 351 200 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Per capita nominal in current taka Per capita in constant taka (2000 value=100) Sources: BNHA 1997–2015, iBAS data. Bangladesh Economic Review Note: This graph includes both current and capital expenditure of the MOHFW The growth in public expenditure on health in Bangladesh was mainly due to high economic growth. The decrease in the priority of health within public expenditure has thwarted further growth (Figure 10). The share of the Government expenditure allocated to the sector decreased between 2001-15, reducing the potential increase in public expenditure on health. In contrast, countries like Indonesia and Vietnam, over the same period had much larger increases in per capita expenditure on health; growth that was fostered by a marked increase in the priority of health within Government expenditure in addition to robust economic growth. In the case of Indonesia, prioritizing health in the budget was the main source of public expenditure on health growth. Figure 10: Fiscal Decomposition of per capita real public expenditure on health 2001-2015 in Bangladesh and other selected countries Source: JLN DRM Collaborative (2019) based on WHO Global Health Expenditure Database Donor assistance, historically an important source of health financing, has also been declining as a proportion of health spending and this trend is likely to continue (Figure 11). External or development partners (DP) financing has always been a critical source of health financing in Bangladesh for all the four sector wide approaches (SWAPs). Official development assistance has provided fiscal support to the health sector for many years and will play an important part, but a significant increase seems very unlikely. Figure 11: Government and Development Partners funds as a share of the total funds for the four SWAPs 100% 84% 78% 80% 73% 62% 60% 38% 40% 27% 22% 16% 20% 0% HPSP HNPSP HPNSDP 4th HPNSP GOB Project Aid (PA) Trend GOB Trend PA Source: Planning Wing, MOHFW Note: This graph includes information on both current and capital expenditure on health. As a result of this low public spending on health and increasing income, household OOP expenditure is the largest component of health spending in Bangladesh. Low public financing for health translates into inadequate service coverage for key interventions to improve population health, and a high reliance on OOP payments. Total health expenditure is dominated by high household OOP payments, which has steadily increased over the years (Figure 12). These payments account for 67 percent of total health spending in Bangladesh (2015), a higher share than LIC (39.6 percent) or LMIC averages (39.4 percent). Figure 12: OOP and government health spending as a share (%) of THE, 2000 - 2015 80% 70% 67% 60% 50% As % of THE 40% 30% 20% 23% 10% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Government health spending as % of THE OOPE as % of THE Source: Bangladesh National Health Accounts 1997-2015 Most households OOP expenditure on health is on drugs. Looking at the breakdown of OOP spending for Bangladesh (Figure 13), expenditure on drugs constitute about 64 percent while about 11 percent goes to ambulatory providers, and 12 percent to private hospitals and a diverse range of medical providers (including traditional birth attendants and unqualified medical practitioners). Figure 13: Out of Pocket Expenditures by Functions, 2015 (%) 5 12 11 4 4 64 Inpatient Outpatient Laboratory Imaging Pharmaceuticals Other Source: Bangladesh National Health Accounts (BNHA) 1997 - 2015 This high level of household OOP expenditure has resulted in low financial protection in case of illness and foregone care. In 2016, 24.7 percent of the population incurred catastrophic expenditure at the 10 percent threshold (i.e. spent more than 10 percent of household income on health), and around 9.5 percent people experienced at the 25 percent threshold level (Figure 14). The incidence of catastrophic spending at both thresholds is much higher than the global average, the already high average in South Asia, and that of lower-middle income countries (Table 1). Further, around 7 percent (WHO and World Bank, 2019) of the country’s population is being pushed into poverty because of OOP health spending. Incidence of OOP health spending related impoverishment is more than double that of South Asia and over three times the lower-middle income country average. High OOP spending also prevents households from seeking care when in need; with 16.4 percent of the population that reported an illness in 2016, not seeking care due to high treatment costs. OOP expenditure is not the only cause of catastrophic payments - poverty, poor healthcare service accessibility, and lack of risk pooling all contribute to the incidence of catastrophic health expenditures. Catastrophic health expenditure is a big issue when all these three factors are most pronounced, as in the case of Bangladesh. Table 1: Incidence of catastrophic health spending (SDG indicator 3.8.2) and impoverishment due to OOP health spending, by region (and for lower-middle income countries and Bangladesh) Regions At 10 % threshold At 25% threshold Impoverishment % Million % Million % (at $1.9 PPP) Global l 12.7 ti 926.6 l 2.9 ti 208.7 1.2 South Asia 17.2 301.5 4.1 72.4 3.1 Sub-Saharan Africa 7.7 76.6 1.9 18.4 1.5 Middle East and North 13.5 57.6 2.3 9.7 0.0 Af i America and Latin 15.1 94.4 2.5 15.5 0.2 C ibb East Asia and Pacific 13.9 313.8 3.5 79.7 0.8 Bangl adesh 24.7 39.0 9.5 15.0 7.0 Lower-middle income 14.2 418.1 1.5 9.5 2.2 t i Source: WHO and World Bank. 2019. Global Monitoring Report on Financial Protection in Health 2019 Note: For Bangladesh information on total population came from World Bank data: https://data.worldbank.org/indicator/SP.POP.TOTL?locations=BD Figure 14: Proportion of population spending more than threshold level of household consumption or income on out-of-pocket health care expenditure (%), 2000 - 2010 30 Proportion of population spending 25 24.7 more than threshold level 20 15 14.84 13.57 10 12.64 9.5 5 4.77 4.27 4.84 0 2000 2005 2010 2016 10% threshold level at 10% 25% threshold level at 25% Source: Tracking Universal Health Coverage: 2017 Global Monitoring Report Reducing OOP spending will be imperative for the country to achieve the health-related SDGs, and particularly progressing towards Universal Health Coverage (UHC). Reducing household OOP payments will likely improve financial protection in case of illness and will also improve access to services, since many households forgo care due to service costs. Improving population access to services and financial protection in case of illness constitute progress in two key aspects of UHC, in which the entire population has access to quality services when in need without facing financial hardship. Investing in progress towards UHC has benefits that go beyond health and will foster sustainable inclusive growth. The reduction of OOP expenditure can have substantial benefits for poverty reduction. It could also protect the poor to maintain their health and increase their earnings, while contributing to build their human capital (World Bank, 2019b). Reducing household OOP payments and improving financial protection in case of illness will require first and foremost an increase in public expenditure on health, an increase in mandatory, pre-paid, and pooled funds. Reducing OOP spending will require increasing pre-paid and pooled funds, since pooling ensures that the financial risk incurred in case of illness is borne by all members of the pool and not just the ones falling sick; it also redistributes the financial risks of illness across the rich and the poor, the sick and the well-off, and the young and the old. But to maximize the impact of pooling in progressing towards UHC, the pools need to be large and mandatory. If they are not mandatory, people with highest risk will try to enroll while low-risk individuals will tend to opt-out. Thus, increasing mandatory, pre-paid and pooled funds, such as those included in the Government’s health budget (which tends to be the largest pool in most countries, including Bangladesh) or those collected through mandatory contributive social health insurance schemes, will be essential. However, increases in public spending alone will not be enough; there will also be a need to improve the use of these funds, and to a lesser extend to strengthen public financial management policies, including the governance of any remaining OOP expenditures (GFF, 2018). This study discusses these pathways to reduce household OOP expenditure in Bangladesh: I. Increasing compulsory pre-paid and pooled funds; II. Improving the use of public funds for health to effectively reduce OOP payments; and III. Improving public financial management, policies, and governance. C. INCREASING PUBLIC EXPENDITURE ON HEALTH-COMPULSORY PRE-PAID AND POOLED FUNDS: 3 In the short term, increasing the share of health in the Government’s budget will be the main source of mandatory, pre-paid and pooled funds. As income grows, per capita expenditure on health increases across countries, while the share of expenditure financed by household OOP payments and by external assistance decreases (Savedoff et al., 2012). This “financing transition” however, is not certain and can be experienced at different times across countries. Ensuring that the country benefits from such a transition will likely require reforms to increase public funds for health and reduce household OOP payments. Bangladesh’s economy has been growing rapidly over the past few years, a trend that is expected to continue. This creates opportunities for the country to innovate and implement needed reforms to improve access to quality services and financial protection for the population. Improving financial protection in case of illness will require first and foremost an increase in public funds for health. These are funds that are mandatory, pre-paid and pooled, such as those included in the Government’s health budget or those collected through mandatory social health insurance schemes. Catastrophic health expenditure tends to decrease as countries increase the share of health expenditure that is pre-paid and pooled (Ke et al., 2007). Generally, more public spending is also associated with less impoverishment as a result of decline in OOP spending. This latter pattern varies significantly across countries. Increasing public funds is likely to be one of the main pathways to decrease OOP payments, and thus improve household financial protection. Improving the allocation and management of public funds and strengthening public financial management policies will also contribute in the reduction of household financial hardship in case of illness. A well-managed health financing transition could offer strong opportunities for progressing towards UHC. Countries like China and Thailand have been able to increasingly allocate more public funds for health, mostly from general Government revenues and further implement reforms aimed at progress towards UHC. These reforms have been able to improve access to services and financial protection to the population, often with a clear poverty focus. However, the design features of these reforms are important. Box 1: Health Financing Transition: Pro-poor demand-side reforms towards UHC, the cases of China, Thailand, and the Philippines China expanded population coverage to health services by introducing multiple insurance schemes. These schemes increased utilization of health services and insurance coverage, from under 30% in early 2000’s to over 95% by 2011 (Meng, Mills, Wang, & Han, 2019). However, initially they did not translate into a corresponding improvement in the financial protection of households. A shallow benefit package particularly for general outpatient care, low reimbursement rates, a simple expenditure cap, and deductibles (even for the poorest) were responsible for a slow decline in OOP share despite a sharp increase in insurance coverage (Liang & Langenbrunner, 2013). The OOP spending share declined later with the introduction of a series of incremental reforms. The public subsidies linked to the premiums have significantly increased; currently the public contribution to the schemes is about four times larger than the individual contribution, representing about 80 percent of the total (WHO, 2019). Gradual increases in the benefit package such as dedicated funds for major diseases under the health insurance schemes and increases in the level of financial assistance helped reduce the share of OOP (Meng, Mills, Wang, & Han, 2019). Further, the introduction of catastrophic medical insurance (also called critical illness insurance or Da Bing Yi Bao) in 2012 and its national implementation in 2015, increased protection for critical illness (Fang, Eggleston, Hanson, & Wu, 2019). Finally, expansion of free basic health services, public health campaigns for high blood pressure, diabetes prevention programs, and early interventions against NCDs through screening and ambulatory care further reduced the need for OOP This section is an updated version of World Bank. 2016. Fiscal Space for Health in Bangladesh: Towards 3 Universal Health Coverage. Washington DC: The World Bank Group. spending (Qingyue, Hongwei, Wen, Qiang, & Xiaoyun, 2015). China’s health financing transition demonstrates the importance of enacting complementary policy measures, the benefit package design and the provision of basic health services in conjunction with an increase in insurance coverage to reduce the share of OOP spending. China’s OOP share of spending has reduced from approximately 65% in 2001 to under 40% in 2016 (WHO, 2017). Figure 1: Percentage of total health expenditure financed through household OOPs and percentage of households covered by a social health insurance scheme- China and Thailand, 1993 - 2016 Source: Analysis of the WHO Global Health Expenditure database Thailand expanded its health coverage through three public health insurance schemes. The Universal Coverage Scheme (UCS) introduced in 2001 was the largest of the three, providing coverage to the poor and informal sector. The scheme was piloted in six provinces in April 2001 and rapidly rolled-out to all provinces except Bangkok by October 2001. UCS provided a comprehensive benefits package for its 48 million members including inpatient and outpatient care, surgery, and drugs. Initially, the non-poor were charged a 30-baht copayment, but the poor and special groups were exempt (Hanvoravongchai, 2013). Despite its generous package, it was able to contain costs through its monopsony power (made possible by a single purchaser), case-based (for inpatient care), and capitation payment mechanism (for outpatient care) thereby incentivizing cost-containment by providers. UCS also enabled a key health financing reform – introduction of a purchaser-provider split in the public sector, and a move towards strategic purchasing. Thailand’s UHC contributed to an increase in coverage from 70% in 2000 to near universal insurance coverage by 2005 (Thailand NHSO, 2017). Increase in coverage coupled with a comprehensive benefits package contributed to a decrease in OOP share of expenditure from over 30% in early 2000 to approximately 15% by 2007 (WHO, 2017). The reduction in OOP share and increase in insurance coverage also translated into a reduction in incidence of catastrophic health spending and impoverishing health spending (Somkotra and Lagrada, 2009). As of 2017, the catastrophic health spending (at the 10% income threshold) was 2.2% and incidence of impoverishment due to OOP spending was close to zero (WHO, 2019) in Thailand. Figure 2: Percentage of total health expenditure financed through household OOPs and percentage of households covered by a social health insurance scheme- Philippines, 1993 - 2016 Source: Analysis of the WHO Global Health Expenditure database In contrast to China and Thailand, in the Philippines the government-financed health coverage program (HCP) has not been able to significantly decrease OOP share of spending despite increasing coverage from approximately 50% in 2001 to 90% in 2016 (PhilHealth, 2017). Paradoxically, OOP share slightly increased from below 50% in 2001 to approximately 55% in 2016 (WHO, 2017). Introduced in 1996, the HCP was targeted towards poor households. While HCP’s risk pooling with the National Health Insurance Program (NHIP) was well designed, the HCP suffered several other design flaws. Initially, it expected local government units to identify, enroll, and pay for the poor – all three of which had limited capacity or resources for (Chakraborty, 2013). While this was gradually rectified in subsequent years with the national government fully subsidizing the HCP for the poor (from 2011) and near-poor (from 2014), other challenges remained. A shallow benefits package, and supply-side constraints i.e. the lack of access to quality services for poor households under the HCP have contributed to a consistent OOP share. Further, a coverage gap of approximately 20 percentage points between the administrative data from PhilHealth and the data from household surveys indicates that a large proportion of those covered do not know of their entitlement. This is likely due to automatic enrolment of the poor and elderly without intensive outreach efforts to inform them of their benefits (Bredenkamp, 2017). Additionally, lack of a formal copayment policy for the non-poor means than there are no limits to what providers can charge; this erodes financial protection and likely contributes to the high OOP share. Finally, the Philippine Health Insurance Corporation’s (PhilHealth’s) ability to effectively monitor and hold providers accountable is also relatively weak, disincentivizing service quality improvements and often leading to non-compliance with the ‘no balance billing’ policy for the poor and elderly. In 2011 – 2012, the expansion of the benefits package along with a large increase in PhilHealth’s membership led to a slight decline in OOP share between 2011 and 2016. However, initial design flaws, lack of entitlement awareness, continuing lack of access to quality providers and weak monitoring capacity of PhilHealth have led to an increase in OOP share of spending in the Philippines despite an increase in insurance coverage. There are different options for a country to increase domestic resources for health in a sustainable manner. There are various sources of fiscal space for health -the availability of room for increasing government resources without jeopardizing the stability of the economy (Heller, 2005) - for health: i) conducive macroeconomic environment that could generate economic growth and thus additional public resources overall and/or an increase in the overall government revenue collection; ii) a reprioritization of health within the budget (increasing its share in Government’s budget), resulting in higher health expenditure; iii) sector specific related taxes such as payroll taxes earmarked for health, sin taxes and others; iv) efficiency gains; and v) development assistance for health (Tandon and Cashin, 2010). Of those, the first three are linked to the mobilization of additional domestic resources for health. In the short term, increasing the allocation for health spending in the budget is likely to be the main source of additional resources for health. To assess potential sources of fiscal space in the country, different scenarios were generated to estimate the impact of each source of fiscal space for health in Bangladesh. The scenarios (Figure 15), projecting the impact of different sources of fiscal space on public health spending as share of GDP demonstrate the importance of reprioritization of health in the budget. Robust growth and improved tax collection raise the MOHFW’s expenditure as percentage of GDP by a modest 0.02 percentage points between 2019-2023 whereas gradually increasing health’s share of the budget by 2023 to the LMIC average of approximately 8 percent (on top of growth/ improved taxes) raises spending by 0.5 percentage points. Economic growth will offer opportunities, but revenue collection needs to be strengthened to ensure robust growth resulting in additional resources for all development priorities. Bangladesh has experienced economic growth averaging 7 percent annually between 2014-18 and its future economic outlook remains strong. Its GDP is projected to grow at approximately 7 percent in real terms through to 2023 (IMF, 2018).5 However, Bangladesh has a low share of government revenue to GDP at 10.7 percent in 2018 compared to 17.5 percent (in 2014) for South Asian countries. Low revenue collection limits the government’s ability to translate economic growth into expenditure. Consequently, Bangladesh’s government expenditure at 14.9 percent of GDP in 2018 is also low compared to South Asian peers and LIC’s which have a public expenditure to GDP ratio of 21.3 percent and 20 percent respectively (2014) (IMF, 2018 and World Bank, 2015). Bangladesh also has a low elasticity or responsiveness of government health expenditure at 0.95 between 1997-2012 (which means a one percent rise in GDP only increases public health expenditure by 0.95 percent). An elasticity of less than 1 implies public health expenditure as a share of GDP decreases. However, Bangladesh’s total health expenditure (public and private) is rising faster than its GDP which combined with low responsiveness of government health expenditure puts greater pressure on OOP spending for health. Health-related taxes particularly tobacco taxation reforms can generate some additional resources for health. Increasing tobacco taxation is an important public health intervention which can also generate additional resources for health. In addition, Bangladesh has earmarked taxes that establish a direct link between revenues from a tax (tobacco tax in this case) and expenditures for a health specific purpose. Revenues from the one percent ‘health development surcharge’ on tobacco products flow directly to the MOHFW – mainly for tobacco and NCD control. The MOHFW can assess if part of these resources could be used for improving access and utilization of services among the poor, thereby reducing the OOP health expenditure. Additionally, changing the tax structure can also increase revenue collected from tobacco (Box 2). Though the country collects around 10 percent of its total revenue from cigarette sales and has a higher ad-valorem tax rate than its South Asian peers, its tobacco revenues are relatively low. Box 2: Boosting the Effectiveness of Tobacco Taxation Cigarette prices in Bangladesh are among the lowest in the world despite having higher taxes than countries like Norway. The prices of low segment cigarettes have remained consistently low, while the premium, high and medium segment prices have been on the rise comparatively. This has resulted in a wider price gap, leading to high volume growth of the low segment cigarettes with buyers switching from the medium segment to the cheaper brands. These varying increases in prices can be explained through the tax structure which has been predominant across each segment. In FY08, the total tax levied on the premium, high and medium segments have been within a narrow range between 67-72 percent of final prices. In the FY20 budget, the range has narrowed further to a rate of 81 percent of their respective final prices (after including the 1 percent health development surcharge). This development essentially means that taxation rate has become almost uniform amongst these three top segments. Due to the nature of ad valorem taxes being charged as a percentage of the retail price, it creates more opportunities for tax evasion. Firms are inclined to avoid higher taxes by manufacturing and selling lower- priced brands. In addition, the ad valorem tax is more difficult to administer due to the challenges in monitoring retail prices (WHO 2015). Given recent evidence, WHO recommends greater emphasis on uniform excise taxes, which will reduce the price gaps between higher- and lower-priced products. This change will help reduce switching to cheaper brands of cigarettes and thereby may also reduce overall tobacco utilization and increase the potential collection of tax revenues. If successful, some of these resources could be used to improve access and utilization of health services among the poor. Not just cigarettes but also bidi is consumed on a large scale in Bangladesh, especially in rural and low- income regions. One of the major reasons behind this is the price of bidi. Bidi production substantially increased in 2007-2012: from 35.3 billion to 72.8 billion, but then decreased to about 45 billion sticks a year. Bidis are also taxed at much lower rates than cigarettes. In line with the global best practice, Bangladesh should also move to a uniform tax structure for all smoked tobacco products (including bidis). Taxes on the top three segments at more than 80 percent is high and there is virtually no additional scope for increasing the tax rates on premium, high and medium segment cigarettes. This policy would entail increasing the tax rates on low segment cigarettes and bidi- -which are taxed at substantially lower rates--to the current maximum rate of 81 percent of final retail price. There is no reason to justify lower taxes on low segment cigarettes and bidi to keep prices affordable for the low-income consumers and losing additional sources of revenue. Additional unified specific excise tax could be introduced for all kinds of cigarettes. Excise taxes for bidi and smokeless tobacco products should be changed from ad valorem to specific ones with specific rates equal (in monetary form) to the rates calculated for high price categories of these products with the current ad valorem rates (World Bank 2019). The excise rate for bidi should be high enough to minimize downward shifting to less expensive products. Since FY 2015, the country has started earmarking the revenues from tobacco taxation for the health sector. Earmarked taxes establish a direct link between revenues from a specific tax and expenditures for a specific purpose. In the 2014-15 budget speech, it was proposed to impose a 1 percent ‘health development surcharge’ on all imported and domestically produced tobacco products. Reference: World Bank (2019), Bangladesh Overview of Tobacco Use, Tobacco Control Legislation, and Taxation A Country Brief. Reprioritizing government expenditure towards health given the existing low level of public health spending presents a significant opportunity for additional resources. Bangladesh’s current health expenditure as a share of the budget is low at about 4 percent average between 2005-2016 compared to about 7 percent in South Asia, and 8 percent in lower-middle income countries (Figure 7). Further, contrary to the global trend of government health spending as share of government expenditure increasing as a country gets richer, Bangladesh’s health share has been decreasing from 4.4 percent in 2010 to 3.4 percent in 2016 (WHO, 2018). Though MOHFW’s real health expenditure per capita in absolute terms has doubled due to robust economic growth, the declining budget share of government health spending and its low level relative to peers indicates that reprioritization of health presents a large potential source of fiscal space for health over the short to medium term. However, reallocation is challenging given competing demands on the budget 4 from other spending priorities such as infrastructure, debt servicing, social sector spending, etc. A potential area identified by the IMF is to reduce spending in regressive energy subsidies which disproportionately benefit the better off (IMF, 2016). In the budget for 2017-18 this subsidy amounted only to about 0.3 percent of the total government expenditure and around 9 percent of the total government subsidies. However, according to the IMF Article IV consultations for 2019, this subsidy may be costing the economy more than 3 percent of GDP annually. A gradual convergence of the government’s health spending as share of its budget towards global norms (to 8 percent of budget) will generate additional resources, thereby reducing OOP health spending. Contributory insurance options are unlikely to generate substantial additional resources for health in the short-term but offer long-term opportunities. Contributory social health insurance (SHI), where contributions are levied on individuals or employers are viewed as a source of additional resources for health. Bangladesh’s 20-year Health Financing Strategy envisions contributions from the formal and informal employed sector to the Social Health Protection Fund (SHPF). However, this is challenging in practice given the difficulties in designing, operationalizing, and managing an insurance system. Furthermore, 4 BNHA, 1997–2015, iBAS data; Bangladesh Economic Review international experience highlights the difficulty of collecting contributions from the informal sector. 56 percent of the population in Bangladesh constitutes the non-poor informal sector is likely to encounter similar challenges (HEU, 2012). The formal sector – for example, ready-made garment workers or civil servants – offer some potential for revenue mobilization. However, they constitute a small proportion of the population and formal sector contributions will generate a modest 3 – 6 percent increase in the government budget. Given the slow pace of, and challenges in operationalization, insurance schemes are unlikely to generate fiscal space in the short-term but offer opportunities in the medium to long-term. Donor assistance for health is unlikely to increase and will constitute a smaller proportion of health spending in the future. Donor support as a share of MOHFW’s budget has fallen from 40 percent in 2001 to slightly over 20 percent in 2015 as the country has grown richer (HEU, 2016). This trend, demonstrating the ‘health financing transition’ where domestic sources constitute a large majority of government spending is likely to continue. It is unlikely for donor assistance to increase since it is difficult for donors to justify increasing assistance to a growing lower-middle income country at the expense of poorer countries. Efficiency gains in government health spending do not represent a major source of fiscal space. Increase spending efficiency by better utilizing existing resources can also be a source of fiscal space. Since the goal is to improve health outcomes, getting better value from the same budget also presents an opportunity. However, Bangladesh has been a strong performer on the MDG agenda despite a low level of health spending. It has better outcomes compared to other countries in the region with a higher spending on health. This suggests the country is achieving good value for money. Though inefficiencies exist – for example, underutilization of the budget and in procurements of drugs and equipment, they do not represent a major source of additional funding due to the very low level of current government health expenditure at 0.8 percent of GDP. 5 Increasing prioritization of health in the government budget presents the largest opportunity for increasing fiscal space for health. To assess the relative importance of the five potential sources of fiscal space, three scenarios projecting total MOHFW expenditure as share of GDP were developed (Figure 15). In all scenarios, the share of donor assistance for health (as percent of GDP) is assumed to be flat. The first or baseline scenario: robust growth and improved tax collection – takes IMF’s macro-fiscal projections, which forecast robust economic growth and improved tax collection from 2019-2023 but holds the total budget share allocated to the MOHFW constant at approximately 5 percent. 6 Economic growth averaging 7 percent annually and a slight increase in revenue collection doesn’t translate into a significantly higher health spending by the MOHFW as share of GDP (which remains at ~0.78%). The second scenario: growth/tax scenario plus better budget execution – incorporates increased efficiency through better budget execution (utilization assumed to be near 100%, up from the current ~85%) in addition to robust growth and improved tax collection (scenario 1) (HEU, 2016). Better budget execution leads to a one-time 0.1% of GDP increase in MOHFW spending between 2019 and 2020, after which it stabilizes to ~0.88% of GDP. Other inefficiencies are not factored into scenario 2 since they would not result in a large health budget per se but would improve outcomes within the existing budget. The third scenario: growth/tax scenario plus higher prioritization of health – gradually increases priority accorded to health within the budget (i.e. MOHFW’s share of the budget) from 5.1% in 2019 to 8.1%, the average for low- and middle-income countries by 2023. Increase in MOHFW’s share of the budget increases public health spending by ~0.5% of GDP to reach 1.26% of GDP in 2023. As discussed above, this increase is challenging because it entails a corresponding decrease in other sectors. However, this scenario is intended to illustrate that moderate increases in health’s share of the budget can substantially increase resources available for health. The scenarios highlight the potential and importance of reprioritizing health in the budget to increase the fiscal space for health and reduce the OOP expenditure. 5 Calculated using IMF Bangladesh: 2018 Article IV Consultation; Bangladesh budget brief statement 2, 2019-2020, Ministry of Finance (revised). Note that these numbers differ from WHO GHED since they only refer to the MOHFW and not total public expenditure on health. 6 Bangladesh budget brief statement 2, 2019-2020, Ministry of Finance (revised). Figure 15 - Scenarios for Bangladesh's Ministry of Health and Family Welfare Expenditure as % of GDP, 2019 - 2023 MOHFW expenditure, as % of GDP 1.40 2019 2020 2021 2022 2023 1.26 1.20 1.13 0.98 1.00 0.86 0.86 0.88 0.89 0.87 0.77 0.76 0.76 0.78 0.79 0.77 0.77 % of GDP 0.80 0.60 0.40 0.20 0.00 Robust growth and Growth/tax scenario plus Growth/tax scenario plus improved tax collection better budget execution higher prioritization of health Source: update of analysis done by World Bank 2016 Note: The budgetary data from MOHFW includes current and capital expenditure on health. Several countries have been able to significantly increase or maintain a relatively high priority of health within Government expenditure. Large increases in priority have often taken place in countries that have significantly reformed their health systems to improve access to health services while improving financial protection in case of illness. Some of these countries are mentioned in this or other sections of this document, such are the cases of China, Thailand, and a more recent example of Indonesia. D. IMPROVING THE USE OF FUNDS FOR HEALTH TO EFFECTIVELY REDUCE OOP SPENDING Efforts to reduce OOP payments should also focus on increasing coverage of quality basic services and targeting the poor and vulnerable through a mix of supply- and demand-side programs Increasing the allocation of public funds for health will be necessary to reduce OOP payments, but it will not be enough; how resources are allocated and used matters. Ensuring that resources are used to effectively increase the coverage of a basic package of services to the population, particularly the poor and vulnerable, will be important. Several LMIC that have progressed in the health financing transition have developed reforms aiming at increasing effective access to services and improving financial protection of the poor; lessons learned from these experiences can support Bangladesh’s efforts to reduce OOP spending. Some countries have developed pro-poor “supply-side programs/strategies” that have improved the capacity of the service delivery network, and particularly the primary health care network, to provide quality health services (Box 3). These programs/strategies have increased funds for health inputs and/or for reforms in the managements of these inputs. Other countries have developed pro-poor “demand-side programs” where public resources, mainly from general government revenues, are linked to a previously identified beneficiary population and the services they use (Cotlear et al. 2015), as in the countries discussed in Box 1. Often demand-side reforms are implemented in parallel to supply-side ones; since a demand-side program could not effectively provide services without a service delivery network with the capability to do so. As in the previous examples, an important mechanism to reduce OOP payments and progress towards UHC in Bangladesh would be to invest in the readiness of the supply; in other words, increase the funds for inputs and reforms in their management to ensure the availability of skilled health personnel (medical doctors per 10,000 population is approximately 5 in Bangladesh compared to around 7.5 in lower-middle countries and in South Asia (WHO, 2018b)), as well as medical equipment, supplies and pharmaceutical products. Since pharmaceutical products are the main source of OOP expenditure, increasing access to affordable pharmaceuticals will also be important, beyond policies aimed at increasing the readiness of the public delivery network. Finally, Bangladesh could further target additional resources to the poor through the development of “demand-side” programs. Indeed, the country is already piloting some (i.e. Maternal Voucher Program and Shasthyo Shuroksha Karmasuchi). The following paragraphs elaborate these potential mechanisms. Box 3 – Primary care focused supply-side programs in Brazil, Sri Lanka, and India Brazil’s tax-financed health system, Unified Health System (Sistema Único de Saúde, SUS) started as part of the country’s move towards greater investments in social programs in the late 1980’s. SUS aimed to achieve universal and equitable health coverage. Consequently, SUS laid emphasis on primary health care (PHC) and community-based care, constituting a large change from the previous curative care focused model. The Family Health Strategy (FHS), started in 1994 was the centerpiece of the shift towards primary care. It was supported by the Community Health Agents Program (Programa de Agentes Comunitários de Saúde, PACS). The FHS is based on multi-professional family health teams, usually six to 10 professionals (a family health physician or generalist, a nurse, nursing assistant, 4-6 community health workers, and in some cases dentist health professionals). They provide active care through regular home visits to every family in the team’s coverage area. In addition to the outreach-based and family- centric model, the FHS has 3 other components: a change in the provider payment mechanism to incentivize state and municipal governments to rapidly expand primary care services; a comprehensive package of services including provision of essential drugs; and specific programs focusing on vulnerable populations. Further, Brazil invested in strengthening other public health activities and programs such as immunization coverage, disease control and sanitary surveillance. The FHS and its focus on primary care has been pro-poor despite it being a non-targeted program. It covered over 90 per cent of the population (2008) in Brazil’s poorest income quintile and has decreased inequality in healthcare coverage and utilization. Though OOP expenditure remains high in Brazil, constituting over 40% of health spending, most primary care is financed and provided by the government – approximately 84% is provided by the municipal government (WHO, 2018). Providing coverage in 95% of Brazil’s municipalities, the FHS is perhaps the world’s largest comprehensive, community-based, primary healthcare program. Several studies have shown its positive impact on reducing the infant mortality rate and hospitalization for chronic diseases. Brazil was able to improve its health supply by focusing on primary care and shifting from a passive curative health system to an outreach-based model. The primary care focus was largely public financed with PHC share of public expenditure increasing from 2.5% in 2002 t0 3.4% in 2010 (Couttolenc, and Dmytraczenko, 2013). Sri Lanka has focused on supply-side efforts to ensure strong health service delivery. It stands as an outlier among low-incomes countries having simultaneously achieved good health outcomes in maternal and child health, and financial protection at a low cost. Strong governance and management of the health system is responsible for Sri Lanka’s outlying performance. It has a long history of government-provided universal and free access to health services since 1930. The Ministry of Health (MOH) both finances and delivers services via its health facilities. Services such as ante-natal care, skilled birth attendance, and DPT3 immunization have nearly 100 percent coverage. Further, Sri Lanka’s health service utilization indicates it has a pro-poor government system despite the absence of explicit targeting. Though OOP spending constitutes around 40% of health expenditure, it is largely incurred by the rich on outpatient care to avail a better customer experience (e.g. less wait times, more convenient hours) albeit a similar quality. Financial protection remains high since 95% of inpatient care and 100% of preventive care occurs in the public sector which is free. Geographic access to government services is also very good, partially due to a high population density. In summary, effective supply-side management of human resources, drugs, and facilities has ensured good health outcomes and service delivery at a relatively low cost (government health spending is approximately 1.5% of GDP) in Sri Lanka (Smith, 2018). India’s National Health Mission (NHM) which began as the National Rural Health Mission (NRHM) in 2005 is the national Ministry of Health and Welfare’s (MOHFW) umbrella supply-side program. The NRHM was started to strengthen public health delivery infrastructure and improve service delivery, focusing on primary health care in rural areas. In theory, the NHM complements India’s demand-side government-sponsored insurance program (the Pradhan Mantri Jan Arogya Yojana, PMJAY and its predecessors), targeted towards secondary and tertiary care. In addition to making investments in India’s public health delivery system, the NRHM sought to integrate hitherto vertical programs to pool resources, increase community participation and ownership, decrease regional disparities in health, and introduce flexibility in financial management. For example, the NRHM working through the state government-run primary health care system introduced performance-based payment for a new cadre of grassroot workers – the Accredited Social Health Activist (ASHA) workers. NRHM has been credited with a sharp rise in institutional deliveries by creating new infrastructure such as the 24/7 primary health centres and incentivizing institutional deliveries. The NRHM is non-targeted but implicitly pro-poor owing to its rural and primary-care focus. The NRHM was combined with the National Urban Health Mission (NUHM) - launched in 2013 to cater to the growing urban poor population - under the NHM umbrella. The NHM builds on the NRHM focusing on strengthening primary care and improving service delivery, especially for Reproductive-Maternal- Neonatal-Child and Adolescent Health (RMNCH+A), and Communicable and Non-Communicable Diseases. Though India still has a very high OOP share of health expenditure at approximately 65% (2016), it has decreased from over 70% in 2005, partially due to investments in public health care delivery through the NHMs (WHO, 2018 and Nagpal, 2013). Pro-Poor Supply-Side Reforms: Improving the Readiness of the PHC Network Most health care provision in Bangladesh takes place in the private sector, resulting in high OOP payments. Both at the primary and secondary care level, most patients seek care in private providers; only for specialized tertiary care are public hospitals the main care providers (Table 2). As a result, household OOP payments tend to be high. This includes payment for services or pharmaceutical products rendered by the private sector, and payment to public providers for services that are not fully subsidized (fees are charged for most inpatient services provided in public hospitals as well as outdoor fee and admission fees in PHC facilities). In principle, all pharmaceuticals provided in public facilities are free of charge. Table 2: Bangladesh outpatient care seeking by provider and type of care Outpatient care seeking by provider Public Private Private Private (percentage) Type of care formal informal non-profit Primary 11% 18% 71% 0.2% Secondary 29% 69% — 2.4% Tertiary 60% 36% — 4.0% Source: (Ahmed et al, 2019) based on the analysis of the Household Income and Expenditure Survey (HIES) 2016 A significant proportion of outpatient care is sought from drug outlets and informal providers (e.g. ayurvedic, homeopathic, kabiraji). Figure 16 shows that the main providers people seek when ill are pharmacies/dispensaries, followed by informal providers. People tend to use drug outlets and traditional providers as the first point of contact since they are nearby and remain open when other providers are not available. Indeed, data from the HIES 2016 shows that the main reasons for choosing a provider are proximity, perceived quality and affordability (WB, 2019). In addition, the lack of drugs and supplies in public health facilities also compels patients to seek care at drug outlets (Kasonde et al. 2017). Data from the HIES 2016, shows that patients mainly get pharmaceutical products in drug outlets (93 percent), only 3 percent of patients got pharmaceutical products from public health facilities. This pattern of health care utilization also points to high levels of population self-treatment. The high use of private providers and particularly drug outlets explains the high levels of OOP payments and the high share of these payments that goes to pharmaceutical products (Figure 13). Figure 16: Bangladesh, share of those who reported visiting facility after illness, by facility type (weighted) Source: Bangladesh Household Income and Expenditure Survey 2016 Note: Out of individuals who reported illness and visiting some facility as a result (excludes those who were not ill or who were ill but did not visit facility). The extensive use of drug outlets not only highlights a poor readiness of the public PHC network, but also to a high reliance on self-treatment and the irrational use of pharmaceuticals. Indeed, Bangladesh is seen as one of the drivers of the antimicrobial resistance (AMR) due to poor adherence of antibiotic protocols, their use for growth promotion in farm animals, self-medication and illegal over-the-counter access to these antibiotics (USAID, 2019). Improving the readiness of the supply side and particularly the readiness of the public primary health care network to provide basic services will be key to improve financial protection and progress towards UHC. It will be particularly important to ensure the readiness of the public primary health care (PHC) network; which provides 40 percent of the care provided in formal health facilities. Providing care through PHC providers have been consistently shown to be effective, efficient and equitable (World Bank, 2019b). By revising opening hours and ensuring their readiness, they could replace part of the provision that is currently sought in drug outlets. Currently effective coverage and quality of health services, particularly for non- communicable diseases (NCD) at public health facilities remains low. Community clinics (CCs) and upazila health and family welfare centers (UH&FWCs) as the first entry points into the public health care system, are meant to provide preventive and primary care, including screening, antenatal care, and normal deliveries, as well as health promotion and health education. According to the Bangladesh Health Facility Survey (BHFS) 2014, only 36 percent of UH&FWCs and 17 percent of CCs have all the equipment, medicines, and trained staff to provide family planning services. Only 3 percent of UH&FWCs and 1 percent of CCs are prepared to provide antenatal care. None of the union-level facilities meet the preparedness standards for providing normal delivery care. In addition, only a third of the facilities in the country offer NCD-related services (Bangladesh SPA, 2017); the situation at public PHC facilities is likely to be much worse. This will pose an increasing burden on Bangladesh’s health system with the growing burden of NCD’s. Further, there is large geographical variation in availability of the 3 primary NCD services (diabetes, hypertension and chronic respiratory disease) - only 9 percent of rural facilities provide them compared to 37 percent in urban areas (Bangladesh Short PHCPI VSP Explainer Report, 2019). One of the main challenges to ensuring the readiness of the supply is the lack of skilled personnel at health facility level. The country suffers from both a shortage and geographic mal distribution of human resource personnel in the health sector. For instance, in 2017, there were 27 percent vacant posts under the Director General of Health Services of the MOHFW (Health Bulletin, 2017). Data from the BDHFS 2014 shows that among doctors and medical technicians the situation is far worse than among other skilled health personnel. Vacancies are more common in the public health facilities, particularly in the union level public providers. Table 3 - Percentage of posts filled by healthcare provider type by facility type Facility type Specialist General Paramedic Nurse / Medical and practitioner midwife pharmaceutical technicians District and upazila public 58.5 66.4 99.5 80.7 78.8 facilities DH 70.1 70.5 - 88.8 83.9 MCWC - 84.4 132.3 86.8 74.5 UHC 54.7 64 97.5 75.6 78 Union level public facilities - 21.6 86.9 - 43.7 UHFWC - 16.1 90 - 36.3 UHFWC (upgraded) - 8 80.2 - 37 USC/RD - 37.8 91.2 - 58.3 NGO clinic/hospital 84.5 82.6 103.3 83.3 102.9 Private hospital 70.8 89.6 90 102.5 93.8 Total 67.9 70.7 92.9 92.2 72.2 Source: Bangladesh Health Facility Survey, 2014 The availability of basic amenities in health facilities still remains poor despite improvements between 2014 - 2017 (Bangladesh SPA, 2017). Only 5% of facilities had all 6 basic amenities - improved water source, latrine for clients, privacy during consultation, computer with internet access, regular electricity, and communication equipment. Availability of basic amenities was not universal even among the higher level of health facilities such as the district hospitals - only 50% had all 6 basic amenities in 2017 (Bangladesh SPA, 2017). These challenges highlight that the health system, particularly at the primary level, isn’t ready to provide quality health services to all. Reforms to Improve Access to Affordable Medicines Additional resources and efforts will also need to focus on improving access to affordable medicines. Access to affordable medicines in Bangladesh is constrained by poor availability, particularly in the public facilities, where drugs are meant to be free. While availability is better in the private sector, access to drugs is constrained by affordability - particularly for medicines treating non-communicable diseases (NCDs). Availability of essential drugs is insufficient and varies considerably across facility types, especially in the case of NCD-related drugs. Tables 4 and 5 below show the poor availability of medicines in all types of facilities; none of the medicines shown in the table were available in all facilities, regardless of the type of ownership or level of care. In the case of medicines for the care of sick children, district and upazila level public facilities are more likely to have these medicines on stock than any other type of facilities, including private sector and NGOs. Union level facilities and public community clinics are the least likely to have them available. Table 4: Availability of Essential Medicines for sick child care across type of facilities, 2014 Facility type ORS Amoxicillin Cotrimoxazole Paracetamol Vitamin A Mebendazole/ Zinc Albendazole District and 87.7 80.4 74.3 82.4 59.5 75.5 65.4 upazila public facilities DH 98.4 75.8 75.8 88.7 69.4 83.9 75.8 MCWC 46.5 91.9 76.7 91.9 40.7 94.2 27.9 UHC 94.8 78.6 73.6 79.5 61.9 70.2 71.7 Union level 47.5 81.7 71.1 84.4 29 84.8 33.9 public facilities UHFWC 39.4 86.4 73.1 89.8 31.6 91.8 33.1 UHFWC 24.3 87.1 78.4 90.3 27.4 91.7 26.5 (upgraded) USC/RD 84.8 69.1 60 69.9 26.9 67.1 43.2 Public 89.3 81.6 34.4 86.9 77.7 91.3 77.2 community clinic (CC) NGO 89.8 69.8 44.1 81.7 67.6 82 70.6 clinic/hospital Private 78.3 53.7 32.5 72 46.3 71.7 67.7 hospital Total 78.6 80.5 45.3 85.6 63.9 88.4 65.5 Source: Bangladesh Health Facility Survey 2014 Essential medicines for the control of common NCDs are less likely to be available at public facilities. This is particularly the case of public facilities at the district and upazila level. Less than half of district hospitals have the four essential medicines listed for the control of diabetes; in the case of cardiovascular disease control, the essential medicines most commonly available were Beta blockers, and even in that case less than three quarters of district hospitals had them on stock (Table 5). The availability of most essential NCD medicines in private hospitals is substantially higher compared to district hospitals (Table 5). Table 5: Availability of Essential Medicines for control of diabetes and CVD Essential medicines for diabetes Essential medicines for cardiovascular diseases Facility type Met- Gliben- Injectable Injectable ACE Thiazide Beta Calcium Aspirin formin clamide insulin glucose inhibitors blockers channel solution blockers District and 14.5 20.6 24.9 14.8 8.4 7.3 60.3 39.2 24 upazila public facilities DH 39 25.4 47.5 33.9 16.9 18.6 71.2 64.4 42.4 MCWC 0 12.5 12.5 0 0 0 0 11.1 11.1 UHC 10.5 19.9 21.2 11.9 7.1 5.5 60 35.6 21.2 NGO 12.8 2.4 11.7 7.9 4.7 10.3 28.5 31.7 8.8 clinic/hospital Private 61.5 36.6 65.5 48 36.6 37.7 64.9 75.1 57.4 hospital Source: Bangladesh Health Facility Survey, 2014 Limited public resources for medicines places a large financial burden on households. In 2015, only 5 percent of spending on medicines was through public sector procurement with the remainder being procured by the private sector (BNHA, 2015). This reflected in the total per capita expenditure on pharmaceuticals in the same year – US$ 0.7 per capita in the public sector compared to US$ 15.5 in the private sector (BNHA, 2015). This low spending results in the low availability of essential pharmaceutical products in public health facilities, which places a large financial burden on households: 64 percent of OOP expenditure goes towards medicines (BNHA, 2015). Increasing resources for pharmaceutical products as well as investments in strengthening public system procurement and supply chain will reduce the household financial burden by improving access to pharmaceutical products free of charge in public facilities (more details on this are in the next section). Access to drugs for NCDs is particularly constrained by their affordability. Though medicines aren’t generally more expensive in Bangladesh due to a robust local pharmaceutical industry, medicines for common NCDs (e.g. metformin, omeprazole and atorvastatin) are expensive. The price of common NCD medicines is higher in Bangladesh compared to other countries in the region such as India, Pakistan and Sri Lanka (Kasonde, et al., 2017). The price of these drugs can be 1-2 days of the monthly earnings of a typical public sector employee for diseases such as hypertension and diabetes. The relatively high prices of NCD medicines, low availability in the public sector (Table 5), and their long-term use imposes a financial burden on households, limiting their access to these drugs. Improving financial access to these drugs is important, particularly because only two NCDs - cardiovascular and respiratory conditions are responsible for 40 percent of all recorded deaths in Bangladesh (DGHS, 2011). Household OOP spending can be reduced, and drug use can be rationalized by introducing a pharmaceutical benefits management system. A pharmaceutical benefits management system can reduce the household financial burden of drugs while encouraging rational dispensing and use of drugs. This management system could be part of a demand side program such as a health protection scheme described later (SSK). In this model - a third party payer reimburses the cost of medicines dispensed to patients in private pharmacies, based on a defined formulary (drug list) and regulated prices, with or without patient copayment. However, this is operationally complex, requiring coordination between different parts of the health system. It also requires setting up of an infrastructure to determine benefits and reimbursement rates, manage enrolments, accreditation, provider contracts, claims processing, and to monitor quality. However, it has the upside of rationalizing drug use by imposing rules on providers and selecting the list of reimbursable drugs while simultaneously reducing OOP expenditure. Overuse of drugs is common in Bangladesh due to an absence of prescription-only medicines: most medicines are readily available over the counter. Unlicensed “drug shops,” where diagnosis and dispensing are often undertaken by untrained individuals, are widespread (Lombe et al, draft). The private sector’s reach can be leveraged to improve access to medicines. Patients are driven to the private sector pharmacies and drug outlets due to availability of medicines there, limited opening hours of health facilities, and stock-outs in public facilities. As mentioned before, drug retail shops are often the first (and sometimes only) source of health care outside the home. This highlights the importance of the private pharmaceutical sector as an entry point for majority of the population into the health system. This also presents an opportunity for partnering with the private sector. Potential interventions include “pay for performance” schemes - where private drug outlets are incentivized and rewarded for following national dispensing protocols and informal providers are rewarded for referring patients to the formal healthcare system for initial consultation (Lombe et al. draft). Pro-Poor Demand-side Reforms Demand-side programs attach resources to a targeted population and purchase a pre-determined set of health care services on their behalf. Demand-side programs entail a range of design choices. First, the target population must be identified. Some countries such as Indonesia and India’s PMJAY have programs targeting the poor and vulnerable only. Thailand targets the informal sector in addition to the poor and vulnerable while the Philippines combines the formal sector with the poor and vulnerable for its demand- side program. Second, the benefit package needs to be determined to establish the range of services which are available to the targeted population under the program and that can be financed with available resources. Other key design choices are the providers to be included in the scheme (i.e. public and/or private) and the mechanisms by which providers are paid. All these choices imply trade-offs that when well managed can effectively increase access to services while improving financial protection. Several countries have implemented demand-side programs with varying levels of success. The success of demand-side programs depends on their design features, particularly the benefit package and provider payment mechanisms. Bangladesh can learn from these experiences to avoid their pitfalls and take advantage of the positive lessons learned. Box 1 as well as Box 4 describe the experience of Indonesia, India, China, and Thailand with subsidized health insurance schemes for risk-pooling and financial protection. Indonesia’s example highlights that to effectively increase service provision and reduce OOP, demand-side programs must be backed by supply-side improvements if the existing supply is weak. Bangladesh has piloted some demand-side programs that together with these international experiences can provide some evidence and lessons to draw. Box 4: Pro-poor demand-side UHC programs Indonesia’s insurance coverage increased from 27 percent in 2005 to 66 percent in 2016 with the introduction, and expansion of a government-financed health insurance scheme – Jaminan Kesehatan Nasional (JKN) (earlier called Askeskin started in 2005 and renamed Jamkesmas in 2008) (BPJS Kesehatan, 2019). In 2014, the most recent health scheme, JKN, was announced. It combines the social insurance programs for health, pooling contributions from members and the government under a single implementing agency called BPJS Kesehatan. Contributions for the poor and near poor are fully financed by the government (Harimurti, Pambudi, Pigazzini, & Tandon, 2013). However, OOP share of expenditure hasn’t tracked insurance coverage. The OOP share was 54 percent in 2005 when the first government-financed insurance program for the poor was announced. OOP remained high at 57 percent in 2011 before declining to 37 percent in 2016 (WHO, 2017). The initial rigidity of the OOP share despite a generous benefits package was due to access barriers or supply-side constraints. Limited effective availability of benefits provided under Jamkesmas, particularly in relatively remote or rural locations forced beneficiaries to seek treatment at fee-charging private sector providers not covered under the scheme. Supply-side constraints included lack of doctors, nurses, medical equipment, essential supplies, and other basic amenities (Harimurti, Pambudi, Pigazzini, & Tandon, 2013). Further, prevalence of informal payments to health care providers for services which should have been covered under the insurance scheme led to a high OOP share. Though supply constraints remain, a gradual increase in investments in public health provision have improved the effective availability of benefits provided under the JKN. In Indonesia, supply-side constraints limiting effective delivery of insurance contributed to a stable OOP share despite large increase in insurance coverage. OOP share reduced subsequently with gradual investments in public health provision though substantial supply-side constraints remain (Mahendradhata, et al., 2017). Recent estimates show that catastrophic health expenditure (at the 10% income threshold) also declined to 2.7% in 2018 from 3.6% in 2015, though it has slightly increased from 2.1% in 2005 when government-financed insurance for the poor was first introduced (WHO, 2019). However, and more importantly from an equity perspective, catastrophic health spending has shifted to higher income quintiles (Mahendradhata, et al., 2017). This reflects in the decrease in incidence of impoverishing health expenditure due to OOP spending (at $1.90 PPP, 2011) from around 1% in 2005 to 0.3% in 2015 (WHO, 2019). India’s PMJAY is a government-sponsored health insurance scheme launched in 2018 to replace, expand, and improve upon the previous program – RSBY – launched in 2008. It also aims to converge with over 20 state schemes. PMJAY is targeted towards the poorest 40 percent of India’s population covering approximately 500 million people. It only covers hospitalization with over 1350 secondary and tertiary packages in both public and private providers. Outpatient care is not covered. PMJAY aims to reduce India’s high level of out-of-pocket expenditure share – accounting for approximately 65 percent of health spending (WHO GERD, 2016). It also aims to reduce the high level of catastrophic health spending (at the 10% income threshold) and impoverishing health expenditure (at $1.90 PPP, 2011) at 17.3% and 4.16% respectively (WHO, 2019). It provides an annual cover of Rs. 5 lakhs (~US$ 7000) per household for hospitalization. The scheme is co-financed by the federal and the state governments. It is managed by a federal body – the National Health Authority but implemented by state health agencies. There are significant state-wise variations in the implementation since health is a state subject under India’s constitution. The claims are reimbursed either by a separate trust (a government agency) or by a contracted public or private insurance company; typically, a trust or insurer will sub-contract third-party administrator (TPA) for claims management. Managing PMJAY will pose several challenges given its scale. These include beneficiary identification, updating and costing the benefits package, empaneling around 15,000 hospitals, converging PMJAY with existing state schemes, individually reimbursing over 10 million claims, controlling fraud and overprovision of services. Though, PMJAY is currently costed at less than 0.1% of GDP, future improvements in supply and care-seeking behavior might pose fiscal challenges for India. India’s demand-side PMJAY is complemented by a supply-side program to improve primary care – the National Health Mission (NHM) which aims to ensure universal access to equitable, affordable & quality health care services. It is too early to assess the impact of PMJAY on OOP spending but lessons and challenges from its implementation can be used by Bangladesh in scaling-up its SSK pilot. The Shasthyo Shuroksha Karmasuchi (SSK) Bangladesh is already piloting a demand-side program - the Shasthyo Shuroksha Karmasuchi (SSK) targeting the below the poverty line population. The pilot of the SSK was part of Bangladesh’s Health Financing Strategy to create a Health Protection Scheme for the population below the poverty line (BPL). Bangladesh’ government will pay the premium on behalf of the BPL population ensuring that they do not have to pay at the point of care. The SSK is currently being piloted in three upazilas. The list of benefits is expected to evolve over time, and to be regularly updated. 7 The benefit package is expected to cover in- patient care including free physician consultation, drugs and diagnostics (in upazilas health complexes), and limited treatment for patients referred to secondary level hospitals. Lessons from this pilot could serve as a basis for a strengthened health protection scheme providing financial protection to the poorest. Depending on the success of the pilot, it might also be opened to the above-poverty-line population. Transforming this pilot into a larger program subsidizing the poor and reducing OOP spending will need reforms and design changes. Ensuring that SSK reduces OOP spending would entail defining the institutional arrangements which governs this program after the pilot. These reforms could include the design and implementation of National Health Security Office (NHSO) for social health protection schemes. The NHSO would support implementation of social health protection schemes and strengthen health care services. MOHFW needs to explore the possible structure, legal authority, functions, funding, PFM procedures, staffing, and management of the proposed NHSO. Establishing the NHSO as an autonomous authority under the MOHFW would remove the functional barriers of utilizing the health security fund for the benefits of underserved, poor, and vulnerable groups without encumbrance of financial rules and regulations and protocol applicable to a government entity as it would have a set of financial rules and regulations applicable to an autonomous body. Beyond the NHSO, several design features such the benefit package, payment mechanisms, and list of eligible providers might also need some revision. For example, the benefits package might want to include some outpatient services to increase the comprehensives of the coverage. Maternal Health Voucher Scheme To address challenges with financial access to maternal services, the Government of Bangladesh piloted a demand-side financing (DSF) scheme (popularly known as the maternal health voucher program). Although this program alone might not have a large impact on OOP since it is only supporting one small set of services, it could serve as the basis of a larger program to foster utilization of services and financial protection of the poor. The maternal voucher program was originally piloted in 21 upazilas (sub-districts) from 2006 and got expanded to 55 upazilas till July 2011. It is expected to be further extended to 20 Upazilas to ensure the necessary health care for poor pregnant women. The main objectives of the scheme are to increase demand and utilization of maternal health services, to improve access to and utilization of safe delivery, to encourage institutional delivery and to improve equity in the utilization of maternal health services. The DSF scheme provides poor mothers with vouchers that can be used to obtain three antenatal care (ANC) visits, safe delivery, postnatal care and assisted delivery or caesarean section delivery, if needed. The scheme also provides transportation costs (up to five trips) and cash incentives for safe deliveries (either in a facility or at home) to mothers for first and eligible second deliveries (mothers adopting family planning after first delivery). Studies have shown that the program has been successful in increasing utilization of maternal health services by pregnant women participating in DSF maternal health voucher scheme compared to the utilization by non-participants. Ahmed, S and Khan, M (2011) reported in their study that the voucher recipients in the project area were 3.6 times more likely to be assisted by skilled health personnel during delivery, 2.5 times more likely to deliver the baby in a health facility, 2.8 times more likely to receive postnatal care (PNC), 2.0 times more likely to get antenatal care (ANC) services and 1.5 times more likely 7 SSK, Health Economics Unit, MOHFW, Bangladesh: http://heu.gov.bd/shasthyo-shurokhsha-karmasuchi/ to seek treatment for obstetric complications than pregnant women not in the program. The degree of socioeconomic inequality in maternal health service utilization was also lower in the project area than in the comparison area. The use of vouchers evidenced much stronger demand-increasing effects on the poor. Poor voucher recipients were 4.3 times more likely to deliver in a health facility and two times more likely to use skilled health personnel at delivery than the non-poor recipients. Another technical report analyzed the impact of DSF schemes on utilization, out-of-pocket costs, and equity using Facility Efficiency Survey (FES) 2011 and Patient Exit Survey (PES) 2011 data (ADB, 2012). The facility-level data shows that institutional deliveries have increased in upazila health complexes since 2006 with the impact being greatest in those enrolled in the universal DSF schemes. Noor et.al (2013) reveal that there was a significant increase in the utilization of delivery care at the facility, but it was also observed that use of public-sector facilities for delivery services increased in only intervention sites while control sites experienced greater increase in using private sector. E. IMPROVING PUBLIC FINANCIAL MANAGEMENT, POLICIES AND GOVERNANCE Effective public financial management (PFM) in the HNP sector is crucial for increasing public spending as well as introducing a risk pooling prepayment mechanism toward achieving UHC. A strong PFM system helps ensure appropriate, efficient, equitable, transparent and accountable resource allocation and utilization. PFM system should be sound and flexible without compromising financial control. The key PFM challenges in HNP sector include poor budget execution, delay in fund availability, delay in procurement, lack of flexible cash at facilities, weak PFM capacity and poor governance, monitoring and accountability. Delay in fund availability is a chronic problem causing poor execution of the Ministry of Health and Family Welfare (MOHFW) development budget particularly reimbursable project aid (RPA). The recent introduction of the upgraded version of the Integrated Budgeting and Accounting System (iBAS), namely iBAS++, has accelerated budget distribution. The reasons for delay in fund release include: (a) delay in sending the fund release request letter, (b) absence of necessary documents with the letter for fund release, (c) not providing the Chief Accounts Officer (CAO) a certified reconciled account with the request letter for the third and fourth quarters, (d) delay in sending the Statement of Expenditure (SOE) by the Line Directors (LDs) for the third and fourth quarters, (e) lack of timely follow-up by the concerned Operational Plan (OP) Officer, (f) noncompliance with the donor conditions set for loan/grants, and (g) noncompliance with financial rules and regulations, even minor rules, which can be amended without delay. The recent decision of the government brings a change in the fund release regime. The first and the second quarters of the GOB and RPA portion of the development budget from now on are automatically released, and the LDs/Project Directors (PDs) are able to use the project/OP fund from July 01. This has made fund release easier to some extent. Release of the third and fourth quarter of RPA still requires submission of the SOE by cost centers. The iBAS++ contains all the execution data along with budget allocation, therefore the condition of submitting the SOE should no longer be a requirement for the release of the last two quarters of RPA. In fact, because of the delay in submitting of SOE the fund is made available toward the end of the last quarter (ending on 30 June), which leaves little or no time for spending the fund fully and efficiently. Hence, delinking the fund release from the submission of the SOE is imperative to significantly reducing the delay in fund release of the last two quarters and improve fund availability. Delay in procurement causes frequent shortages of drugs at the facilities, which compel patients to buy drugs from private sector pharmacies/drug shops. The existing weak procurement processes delay the transfer of drugs to the health facilities, causing frequent shortages of supplies. The time requirement for procuring and distributing drugs takes on average 9 months, however in practice, it takes 15–18 months for drugs to reach the Upazila Health Complex (UzHC) and below. A three year framework contract for drug procurement could help reduce the annual procurement problems arising from the current bidding processes. The framework could also reduce the price of medicines by ensuring the lowest competitive price and would encourage drug manufacturing companies, especially well-reputed pharmaceutical companies, to participate in the bidding process directly. Sometimes facilities receive drugs and medical supplies that are either not needed at that level of facility or more than what is actually needed. As a result, these remain unused, which leads to wastage or leakage. On the other hand, facilities face shortages of the needed drugs. The inadequate mix of medical supplies likely hampers the quantity and quality of medical services. Appropriate planning and projection could help health care facilities get the correct quantity of drugs and medical supplies. Introducing ‘Flexible Cash at Facilities’ can potentially solve the problem related to health facilities at the district level for not having funds for repair and maintenance of buildings, equipment, and ambulances at the right time. Lack of operational funds for repair and maintenance affects the quality of services. This happens due to the low allocation of the fund and not having the required funds on time. It was found that sometimes responsible officials are not aware of processes and they do not initiate processes for receiving the fund in a timely manner. The capacity and responsiveness of the contracted agency responsible for repair and maintenance are also an issue. Health managers/providers need enhanced delegation of authority to expend money for repair and maintenance. ‘Flexible Cash at Facilities’ could be arranged if a permanent advance of BDT 200,000 and BDT 100,000, respectively, or a certain percentage of the respective facility budget is allocated to the District Hospital (DH) and UzHC by the DGHS with the approval of the Finance Division of the MOF. Public facilities at the upazila and district levels do not have the required diagnostic services, and this compels the patients to get these services from the private sector. For engaging the private sector at district hospitals and upazila health complexes, the government might allow superintendents of district hospitals and district civil surgeons to contract out these services within the framework of the Public Procurement Rule (PPR) by issuing a circular. This may also need relaxation of the Delegation of Financial Power within the framework of the General Financial Rules (GFRs) with the necessary budget support. However, introducing such a change would be a lengthy process. PFM capacity Lack of adequate manpower skilled in planning and budgeting and PFM is a common and persistent problem at the operational level, contributing to low efficiency in budget execution. Due to the lack of skilled manpower, planning and budgeting are often done by staff from the accounting or administrative unit with little or no knowledge about policy objectives and programs. On the other hand, most of the Program Managers and LDs are medical doctors and are not familiar with PFM functions. Therefore, plans at the operational level often become a wish list and the budget fails to follow the plan. This results in delay in initiating the processes and completing the requirements of PFM. Capacity strengthening activities such as training on how to develop realistic plans and budgets at each level and developing comprehensive manuals on budgeting including coding with clear and adequate examples, modernization of the PFM system, and integration of the Financial Management Information System (FMIS) with MIS could address these problems. The fund release process for RPA is not well understood by all LDs and relevant officials. Some LDs and other relevant officials are unaware that the fund for the first to third or first to fourth quarters can be released all at once if justifications are provided along with the request. As per current practice, the fund therefore becomes available toward the end of the period, leaving little time for spending the fund fully and efficiently. Training of LDs and relevant officials on fund disbursement processes would be useful to expedite fund release. Governance, monitoring and accountability The separate disbursement of operating (nondevelopment) and development budgets results in the lack of coordination and accountability and is also an obstacle to monitoring individual line item expenditures from a single platform. For example, the Director, Finance, Directorate General of Health Services (DGHS), who controls the operating expenditure process, is not informed about the amount released from the development budget through the Operational Plan (OP) budget for the same line item such as Medical and Surgical Requisites (MSR), diet, and so on. Her/his role does not include overall supervision/monitoring of financial activities. As a result, the Finance Director, of the DGHS remains unaware of the latest position of diet and MSR allocation to the health facilities under the DGHS. There is no one responsible in the DGHS and DGFP (Directorate General of Family Planning) to track both operating and development budget allocations of the respective directorates, to prevent wastage, double payment, and pilferages. This indicates the necessity of an effective expenditure control and monitoring system at the directorate level to ensure accountability. The accounting system does not track resources provided to frontline delivery units such as primary health care facilities below the upazila level and resources received and utilized by them. Expenditure is reported against the respective budget heads 8 of the MOHFW. For example, the budget for union-level health and family planning facilities below the upazila is included in the budget for the Upazila Health Offices, Upazila Family Planning Offices, and Upazila Health Complexes (UzHC). Therefore, the government accounting system captures the expenditure incurred by the upazila-level entities, not by union- level facilities. Upazila-level entities send a consolidated financial report to the higher level, that is, district/central (directorate) level. Consequently, the district level or central level does not know how much of the whole budgeted amount reached the union-level facilities. This leads to weak monitoring and poor transparency and accountability. Delay in audit resolution has serious consequences for service delivery. In some cases, this results in the suspension of fund disbursement by the DPs, delayed or no procurement of certain items, slow progress, or sometimes even abandonment of certain activities. Review of the Annual Program Implementation Report 2015 and independent review of responses to the audit observations by the LDs of respective OPs revealed that the status of audit resolution is still far from satisfactory in terms of compliance with deadlines and quality. F. CONCLUSIONS: MAIN PATHWAYS TO REDUCE OOP SPENDING Increasing mandatory, pre-paid and pool fund Reducing household OOP payments will require first and foremost an increase in mandatory, pre-paid and pooled funds. It will require an increase in funds like those included in the Government’s health budget or those collected through mandatory social health insurance schemes. It will also require improving the allocation and management of public funds and strengthening public financial management policies. Reducing OOP spending will require increasing pre-paid and pooled funds, since pooling ensures that the financial risk incurred in case of illness is borne by all members of the pool and not just the ones falling sick; it also redistributes the financial risks of illness. But to maximize the impact of pooling in progressing towards UHC, the pools will also need to be mandatory. If they are not mandatory, people with highest risk will try to enroll while low-risk individuals will tend to opt-out. Thus, increasing mandatory, pre-paid and pooled funds, such as those included in the Government’s health budget or those collected through mandatory contributive social health insurance schemes, will be essential. Increasing mandatory pre-paid and pooled funds in Bangladesh, over the short to medium term, will require a moderate increase in the share of Government expenditure allocated to health. It will require a 8 Entities (function code or operation code in the accounting system) against which budget is allocated. combination of existing and additional domestic resources that result from economic growth, improved tax collection (including improvements through changing the structure of tobacco taxation), and most significantly a moderate re-prioritization of the budget in favor of the health sector. Bangladesh’s current health expenditure as a share of the budget is low at about 4 percent average between 2005-2016 compared to about 7 percent in South Asia, and 8 percent in lower-middle income countries (Figure 7). Further, Bangladesh’s health share has been decreasing from 4.4 percent in 2010 to 3.4 percent in 2016 (WHO, 2018). Though MOHFW’s real health expenditure per capita in absolute terms has doubled due to robust economic growth, the declining budget share of government health spending and its low level relative to peers indicates that reprioritization of health presents a large potential source of fiscal space for health over the short to medium term. 9 Contributory mandatory insurance options are unlikely to generate substantial additional resources for health in the short-term but offer long-term opportunities. Contributory social health insurance (SHI), where contributions are levied on individuals or employers are viewed as a source of additional public resources for health. Bangladesh’s 20-year Health Financing Strategy envisions contributions from the formal and informal employed sector to the Social Health Protection Fund (SHPF). However, this is challenging in practice given the difficulties in designing, operationalizing, and managing an insurance system. Furthermore, international experience highlights the difficulty of collecting contributions from the informal sector. Bangladesh, where 56 percent of its population constitutes the non-poor informal sector is likely to encounter similar challenges (HEU, 2012). The formal sector – for example, ready-made garment workers or civil servants – offer some potential for revenue mobilization. However, they constitute a small proportion of the population and formal sector contributions will generate a modest 3 – 6 percent increase in the government budget. Given the slow pace of, and challenges in operationalization, insurance schemes are unlikely to generate fiscal space in the short-term but offer opportunities in the medium to long-term. Reallocation is politically challenging and there are many other spending priorities (e.g., infrastructure, debt payments, other social spending, etc.), but could offer the biggest potential source of fiscal space for the country. A gradual convergence of health’s share of the budget towards the norm in peer countries (e.g., from ~3 percent to ~8 percent) represents the biggest potential source of fiscal space in Bangladesh over the next few years; it could potentially increase the share of public expenditure on health (as share of GDP) by about 0.5 percentage points. Improving the use of funds to effectively decrease OOP payments: Supply -side interventions Improving the readiness of the supply, particularly of PHC network How those additional pooled resources are used, is also important to reduce household OOP payments. The private sector in Bangladesh provides the largest share of health care to the population across all income levels. Primary care constitutes the largest proportion of care sought in the private sector (~89 percent of primary outpatient care is private). Approximately 80 percent of private primary care is offered by drug outlets or by unlicensed traditional/informal health service providers serving the rural and urban poor population (Ahmet et al., 2019). The extensive use of drug outlets not only highlights a poor readiness of the public primary health care network, but also to a high reliance on self-treatment and linked to it, the irrational use of pharmaceuticals. In this context, improving the readiness of the public health care network to provide quality care, particularly at primary health care level, could potentially reduce the use of alternative providers, thereby reducing the need for OOP payments. PHC remains the main and first point of contact with the health system. Thus, prioritizing efforts in ensuring the functionality of community clinics, union level facilities, and upazila health complexes, including a revision of their opening hours would contribute not only towards decreasing OOPs, but also towards improving efficiency, equity, and effectiveness of the health system. An important aspect of improving the readiness of the public provision network would be to fill the existing vacancies in health facilities delivering the essential service package. Improving Affordable Access to Pharmaceutical Products Ensuring access to pharmaceutical products at affordable prices could also contribute to a reduction in households OOP payments; access to free of charge products in public health facilities is also an important 9 BNHA, 1997–2015, iBAS data; Bangladesh Economic Review aspect of ensuring the readiness of the public supply network. Pharmaceutical products represent more than two-thirds of households OOP payments. Efforts to ensuring affordable access to drugs would require a sizable increase in public resources allocated to their procurement. In 2015, total per capita public expenditures on pharmaceuticals was only about US$ 0.7 per capita; in contrast, private per capita expenditures were US$ 15.5 (Lombe et al., draft). Not only an increase in resources will be needed but also the use of framework contracts for drug procurement to reduce delays in purchasing (Lombe, et al., draft). The existing procurement processes delay the transfer of drugs to the health facilities, causing frequent shortages of supplies. The framework could also reduce the price of medicines by ensuring the lowest competitive price and would encourage drug manufacturing companies, especially well-reputed pharmaceutical companies, to participate in the bidding process directly. Appropriate planning and projection of pharmaceutical needs could help health facilities get the correct quantity of drugs and medical supplies. Increasing access is particularly important for essential drugs for the control of common NCDs. The country could also explore the use of a pharmaceutical benefit management system to reduce the financial burden of drug costs, while encouraging the rational dispensing and use of drugs (Lombe et al, draft). This system could be part of a more broader health protection scheme, particularly for the poor and vulnerable. Given the extensive irrational use of pharmaceuticals, other policies beyond improving the level and use of public resources allocated to drugs will need to be considered. Additional evaluations would be needed to understand what can be done to change behaviors and reduce irrational use of pharmaceuticals. A policy option to evaluate is that of generating a pharmaceutical benefit management system that could be part of a more comprehensive health protection scheme. Improving the use of funds to effectively decrease OOP payments: Demand -side interventions Subsidized social health insurance programs targeted to the poor Given the large needs and the little resources available, an important pathway to reduce OOP payments while decreasing inequalities would be better targeting public subsidies to the poor and vulnerable. Several countries have implemented large reforms aimed at supporting progress towards UHC through “demand- side” programs targeted to the poor: India, Indonesia, China, Thailand, Vietnam and the Philippines. The success of these programs depends on several design features, particularly those linked to the design of the benefit package and provider payment mechanisms. Bangladesh can learn from these experiences to avoid their pitfalls and take advantage of the positive lessons learned. As part of the Health Care Financing Strategy (2012-2032), Bangladesh designed a pilot program aimed at creating a Health Protection Scheme for the population below the poverty line, the Shasthyo Shuroksha Karmasuchi (SSK). The SSK is currently being piloted in three upazilas. Lessons from this pilot could serve as a basis for a strengthened health protection scheme that provides financial protection to the poorest. Nevertheless, the roll out of this pilot or similar health protection scheme targeting subsidies to the poor and ensuring an impact in reducing OOP payments, would need further revisions and discussions. This would include the definition of institutional arrangements for the program and the revision of several design features, such as: benefit package, payment mechanisms, and eligible providers. These reforms could include the design and implementation of National Health Security Office (NHSO) for social health protection schemes. The NHSO will support implementation of social health protection schemes and strengthen health care services. Voucher Programs The country has also piloted an additional pro-poor “demand-side” program aimed at improving access to maternal health care services, the “Maternal Health Voucher Scheme”; evaluations of the program have shown that it has been successful in increasing utilization of these services. This program is currently targeted to a limited number of services that are not likely to have a large impact on OOPs, but it could serve as basis to a much larger program aimed at increasing access to essential services and to improve financial protection. Improving public financial management, policies, and governance The reduction of OOP payments will require not only additional public resources, but a strengthened management of those resources. Effective public financial management (PFM) in the HNP sector is crucial for increasing public spending as well as introducing a risk pooling prepayment mechanism toward achieving UHC. The key PFM challenges in the health sector in Bangladesh include poor budget execution, delay in fund availability, delay in procurement, lack of flexible cash at facilities, weak PFM capacity and poor governance, monitoring and accountability. The Government has put in place several measures aimed at reducing these challenges. However, additional efforts will be needed to ensure an effective and on-time preparation and execution of the budget. The PFM capacity strengthening activities for managers in the health sector should aim at creating awareness and understanding of the PFM concepts, rules, and regulations and their implications. These would help to develop an understanding of the basic concepts and principles necessary for sound PFM, comply with the requirements of the PFM rules and regulations, apply the performance requirements for FM, and apply the principles of effective reporting. The modernization of PFM systems and defining the functional requirements and technology architecture for the implementation of PFM solutions should be based on best practices. A framework for reporting of the PFM activities would be useful. It was found that replacement officials or newly appointed officials face challenges to find processes-oriented documents/reports. The proposed framework would be useful for institutional development and to carry out the PFM functions by the newly appointed officials. A coherent and consistent set of principles, rules, and instructions should be available to guide officials in the delivery of their PFM-related duties and responsibilities efficiently and effectively. Key recommendations for PFM capacity strengthening include: (i) Design appropriate training programs on planning and budgeting for each level; (ii) Develop comprehensive manuals on budgeting including coding with clear and adequate examples.; (iii) Integrate Financial Management Information System with Management Information System; and (iv) Develop appropriate training programs for facility managers/providers to make realistic projections for quantity of drugs, medical supplies, diet, and stationaries. The multi-sectoral approach which has been emphasized in health policies and plans will guide the pathways to reduce OOP spending. In addition to MOHFW, other line ministries and institutions of government will be crucial in reducing OOP spending. Some of the key institutions include: Ministry of Law, Justice and Parliamentary Affairs; Ministry of Finance; Ministry of Planning; Ministry of Public Administration; Ministry of Labour and Employment; Ministry of Education; Ministry of Social Welfare; and Ministry of Local Government, Rural Development and Co-operatives. MOHFW is dependent upon the Ministry of Finance for establishing funding levels and releasing the necessary funds to finance MOHFW operations. Implementation of health insurance and social health protection schemes for different population groups and in different geographic areas by different ministries/institutions must be well coordinated, harmonized and aligned. MOHFW must coordinate with the Ministry of Law, Justice and Parliamentary Affairs and the Ministry of Finance for reforming PFM related laws and acts. All relevant structures of these ministries will participate in different aspects of pathways for reducing OOP spending. This includes key directorates, units, wing/branch, technical working groups, policy advisory groups, senior management, and others. All other structures within the ministries will join in the reforms’ implementation, where deemed necessary. The ministries should have a common language, systems, priorities and incentives for reducing OOP spending. The policy makers and implementers should aim to help bridge the gap between these important ministries and institutions. For example, Lao PDR Government introduced National Health Insurance (NHI) in 2016. The NHI allows Lao PDR citizens to get access to public health facilities for treatment where OOP is minimal. The NHI provides a platform to coordinate different ministries including Ministry of Public Health and Ministry of Labor and Social Welfare. G. REFERENCES ADB (2012) Impact of Maternal and Child Health Private Expenditure on Poverty and Inequity in Bangladesh. Ahmed, S., & Khan, M. 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USAID/Bangladesh: Comprehensive Private Sector Assessment The study aims at providing an overview of different pathways for Bangladesh to reduce its high household out-of- pocket (OOP) expenditures to improve financial protection and further progress towards universal health coverage. Reducing household OOP payments would require first and foremost an increase in public funds. Increasing mandatory pre-paid and pooled funds in Bangladesh, over the short to medium term, will necessitate a moderate increase in the share of Government expenditure allocated to health, since Bangladesh allocates a much smaller share of the government budget to health than countries of similar income level. Reallocation is politically challenging but could offer the biggest potential source of fiscal space for health, larger than the space that economic growth can bring. How those additional resources are used, is also important to improve financial protection. Improving the readiness of the public health care network to provide quality care, particularly at primary health care level, could reduce the use of alternative providers, thereby reducing the need for OOP payments. Ensuring the functionality of community clinics, union level facilities, and upazila health complexes, including a revision of their opening hours would also contribute towards this goal. Ensuring access to pharmaceutical products, particularly for essential NCD-related drugs, at affordable prices could also contribute to a reduction in households OOP payments. In addition to these supply-side interventions, the Government could consider demand-side programs where resources follow the patient. For instance, given the large needs and the little resources available, an important pathway to reduce OOP payments while decreasing inequalities would be better targeting public subsidies to the poor and vulnerable. Finally, improving public financial management, policies, and governance will also contribute to the effective use of existing and any additional resources for health. ABOUT THIS SERIES: This series is produced by the Health, Nutrition, and Population Global Practice of the World Bank. The papers in this series aim to provide a vehicle for publishing preliminary results on HNP topics to encourage discussion and debate. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations or to members of its Board of Executive Directors or the countries they represent. Citation and the use of material presented in this series should take into account this provisional character. For free copies of papers in this series please contact the individual author/s whose name appears on the paper. 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