Report No. 36601-BR Brazil Governance in Brazil's Unified Health System (SUS) Raising the Quality of Public Spending and Resource Management February 15, 2007 Brazil Country Management Unit Human Development Sector Management Unit Poverty Reduction and Economic Management Unit Latin America and the Caribbean Region Document of the World Bank INDEX METHODOLOGY .............................................................................................................................................. 2 CHALLENGES OF RESOURCEMANAGEMENT INBRAZIL'SHEALTH SECTOR sus AND ITS FINANCINGARRANGEMENT ....................................................................................................... .................................................... 3 5 Structure .................................................................................................................................................... 5 PLANNING ..................................................................................................................................................... 13 Planning at State and Municipal Health Secretariats 13 Planning in Health Facilities................................................................................................................... 15 BUDGET PREPARATION ................................................................................................................................. 16 Budget Preparation in Health Secretariats 16 Budget Preparation in Health Facilities..................................................................... 18 BUDGET EXECUTION ..................................................................................................................................... 20 COMPARING SUB-NATIONAL HEALTH SPENDING .......................................................................................... 24 ALLOCATIONOFBUDGETARY RESOURCES ................................................................................................... 25 MONITORING CONTROL AND .................................................................................................................... EXECUTIONOFFEDERAL TRANSFERS ........................................................................................................... 30 SUMMARY ASSESSMENT ............................................................................................................................... 35 SUPPLIES AND MEDICINES ............................................................................................................................. 39 Purchasing and Tendering ...................................................................................................................... 39 Health Secretariats ........................... 39 ...................45 PERSONNELMANAGEMENT ........................................................................................................................... 53 Human Resource Management by Health Secretariats........................................................................... 54 Human Resource Management in the Health Units ........................ ................................ 57 5. ......................... 58 PRODUCTIVITY AND EFFICIENCY ................................................................................................................... 58 QUALITY ....................................................................................................................................................... 60 SUMMARY ASSESSM ..................................................................... 62 FRAGMENTATION THE PLANNINGAND BUDGETING OF PROCESS .................................................................. 63 INFLEXIBILITY AND COMPLEXITY OF BUDGET MANAGEMENT ...................................................................... 64 1 LACK MANAGEMENT OF AUTONOMY LOCALLEVEL AT ............................................................................... 64 INADEQUATE MANAGEMENT INFORMATION ................................................................................................. 65 POOR QUALITY OF LOCAL LEVELMANAGEMENT 66 INADEQUATE INCENTIVES STRUCTURE ......................................................................................................... ......................................................................................... 66 RECOMMENDATIONS ..................................................................................................................................... 69 X: DE REFERENCE FRAMEWORK ............................................................................................................................. 77 METHODOLOGY ............................................................................................................................................ 79 SAMPLING ..................................................................................................................................................... 80 COLLECTION AND PROCESSINGOF DATA ...................................................................................................... 81 FEATURES THE SAMPLE OF ............................................................................................................................ 83 State Secretariats ............................. 84 Municipal Secretariats................................................................................................ 84 ............................. 84 .................................................................................................. 85 TABLES Table 2.1: Average Variation in States' Budget Allocations ............................................... Table 1.1: Health Expenditure. 1995 and 2004 ...................................................................... 4 Table 2.2: Average Variation inMunicipalities' Budget Execution.................................... 31 Table 3.1:Distribution o fHealth Secretariat Purchases....................................................... 32 40 Table 3.2: Incidenceof Delays inthe Purchasing OF SUPPLIES ....................................... 40 Table 3.3: Responsibility for PurchasingSupplies and Services inHospitals Table 3.4: Self-ratings o f the Overall State OfHospital Installations InThe Sample (%) ..41 ..................... 50 Table 4.1:Principle Problems Relatedto Human Resources inHospitals (%).................... ................................................................................... 56 Table 6.1: Summary o f Problems and their Consequences ................................................. Table 5.1: Indicators of Productivity 59 67 Table A.l: Structure of PETS.............................................................................................. 79 Table A.2: Characteristics o fthe States and Municipalities inthe Sample.......................... 83 Table A.3: Hospitals Sample ................................................................................................ 84 Table A.4: Characteristics o f the Hospitals inthe Sample ................................................... 85 Table A.5: Sample o f Outpatient Clinics.............................................................................. 85 FIGURES Figure 1.1: Composition of National Expenditures................................................................ 7 Figure 1.2: Financial Flows inSUS ...................................................................................... 11 Figure 2.1: Problems inthe Planning Process Most Often Cited ......................................... 15 Figure 2.2: Problems inBudget Preparation Most Often Cited Responses......................... Figure 2.3: Quality o f State and Municipal Health Plans..................................................... 17 18 19 Figure 2.5: Variation inBudget allocation and Implementation for the States.................... Figure 2.4: Level of Financial Information inthe Health Units........................................... Figure 2.6: Variation inBudgetallocation and Implementation for the Municipalities ......21 21 Figure 2.7: Problems with Budget Execution ....................................................................... 22 Figure 2.8: Breakdown o f Hospitals' Revenues - By 23 Figure 2.9: Per Capita State Health Expenditures - By Source Source.............................................. 24 Figure 2.10: Per Capita Municipal Health Expenditures - By ............................................ Source.................................. 24 Figure 2.11:Proportion o fTotal Municipal Expenditures on Health ................................... 25 .. 11 ................................ 26 Figure 2.13: Distribution of Municipal Expenditures .By Line Item. 2002....................... Figure 2.12: Distribution o f State Expenditures .By Line Item. 2002 Figure 2.14: Distribution o fThe States' Expenditures on Health - By Sub-function ..........-26 27 Figure 2.15: Make-up o f the Expenditures o f Hospitals inthe Sample............................... 28 Figure 2.16: Variations inthe Implementation o f Municipal Revenues .............................. 32 Figure 2.17: Ratio o f Total Expenditure /Transfer Revenue. Selected programs and Municipalities .............................................................................................................. -34 Figure 2.18: Municipal Expenditures per Capita. selected federal programs and Figure 3.1: Frequency o f Delays inthe Provision o f Supplies and Services InHospitals ...42 Municipalities ............................................................................................................... 34 Figure 3.2: Evaluation o f the State o f Equipment and Frequency o f Break-Downs During 49 Figure 5.1: Reasons for Cancellation o f Surgical Operations .............................................. Preceding6 Months (%) ............................................................................................... 60 Figure 5.2: MainProblems Affecting Quality in Hospitals.................................................. 61 Figure 5.3: Principle Problems Affecting Quality in Outpatient Units Figure 5.4: Frequency o f Problems with Quality inthe Hospitals o f S3o Paul0 State (%)..61 ................................ 62 Figure 6.1: Corrective Action to Improve Resource Management ...................................... 70 Figure A .1:Budget Cycle and Determining Factors for Quality ......................................... 78 BOXES Box 1.1: Recent Changes Introducedinto SUS Financial Flows ......................................... 10 Box 2.1: The Tension ina Decentralization Model 14 Box 2.2: A System for Verifying Costs at the Municipal Level: Cuiabh............................. .............................................................. 30 Box 2.3: Public Administration and SUS Management ....................................................... 35 Box 3.1:The Question o f Availability and Access to Drugs ............................................... 46 Box 3.2: Cases o f Wasted "Investments" Box 3-3:An Example o f the Impact o f Broken Equipment on Quality o f Care ..................48 ............................................................................. 51 ... 111 ACKNOWLEDGEMENTS Gerard La Forgia (Task Manager, LCSHH), Bernard Couttolenc (Interhealth, Ltda) and Yasuhiko Matsuda (LCSPM) prepared this report. Requestedby the Ministry of Health, this study applied the Public Expenditure TruckingSurvey (PETS) methodology, adapted to the circumstances of Brazil's Unified Health System (SUS). This report i s the result of collaboration between the World Bank's Latin American and Caribbean Human Development Network (HD) and Poverty Reduction and Economic Management Unit (PFWM). This Englishversion draws on research and the original Portuguese version prepared by Interhealth Ltda. The Interhealth team was composed o f Bernard F. Couttolenc, (Head Researcher, Interhealth), Carlos A. Machado (Interhealth), Rosa Maria Marques (PUC-SP), Aquilas Mendes (CEPAM), and Leni H.de Souza Dias. A team of six field supervisors participated inthe fieldwork associatedwith the PETS survey: Aquilas N.Mendes (SP), Corina M.Viana Batista (AM),Fatima A. Ticianel Schrader (MT), Janice Dornelles de Castro (RS), Maria H.Lima Souza (CE) and Rosa Pastrana (RJ). The peer reviewer was April Harding (Sr. Health Economist). Juliana Wenceslau, Leo Feler, Maria Virginia Hormazabal, Fernanda Ishihara, Lerick Kebeck, and Cassia Miranda provided valuable assistanceinformatting, editing, and processing this report. iv EXECUTIVESUMMARY Introduction Brazil has made significant progress inhuman development over the last decade, thanks to a series o f policy innovations, and equity o f access has increased considerably. Inhealth, consolidation of government health financing, the organization of the sector into a country-wide system (Unified Health System, or SUS) and the greater emphasis on primary care have been critical for these improvements. Significant challenges relating to inefficiencies and low quality o f services remain, however. Given high public debt and tax burden, system affordability and sustainability may be increasingly threatened, while equity gains obtained in recent years `may be difficult to sustain. Financial authorities are increasingly concerned about rising health care costs, which already represent about 11 percent of public expenditures. At current levels of health system inefficiency, by 2025 total health spending may increase from 8 to 12 percent of GDP while household spending on health as a share o f income can rise from 5 to 11percent. Increasingthe efficiency and effectiveness inthe use o f health resources to contain rising costs i s perhaps the greatest challenge facing the Brazilian health system. Many o f the challenges facing the health sector are linked to governance failures - the lack of incentives and accountabilities that ensure that services are affordable and of acceptable quality, both essential to raising health status. Public spending constitutes a powerful instrument to influence performance in publicly-funded providers. The structure and management of funding flows to these providers strongly influences the incentives they face. In health, governance also refers to the means by which a provider organization (such as a hospital), its managers and staff are held accountable for their behaviors (such as resource management, planning, service monitoring, financial management, etc.) to deliver services with quality and efficiency. Accountability is a key concept that captures the responsibilities of actors and the consequences they face based on performance. That means that poor performance i s sanctioned and good performance rewarded to promote quality and impact. Where there i s no accountability those that excel and those that under- perform are treated equally; a system that i s unfair, and compromises quality and impact. Inshort, governance impacts the quality of public spending, the effectiveness of resource management, and ultimately, the efficiency andquality of service delivery. This report assesses resource allocation and management, planning and budgeting functions, and budget execution at different levels of government for public expenditures on health services. The emphasis i s on understanding the incentives generated for service providers, and the overall soundness of the accountabilities established inthe public health services expenditure system.' The analysis seeks to identify weaknesses o f accountabilities for service provision that stem from the structure and process of intergovernmental and provider funding flows and related managerial practices. The paper draws on and enhances an acceptedgovernance tool, public expenditure tracking, inboth tracking funding and analyzing the governance and corresponding managerial challenges that The degree ofmanagerial autonomy (for public providers), and the effectiveness o fthe regulatory framework are also critical elements o f the governance regime for healthcare providers, and these are discussed inanother World Bank study: "In Search o f Excellence: Improving Hospital Performance in Brazil." (2007, forthcoming). i impede effective public sector financing. The tracking instrument was applied to a sample o f states, municipalities and healthcare facilities inthe country in2004. The UnifiedHealthSystem The publicly financed Unified Health System (SUS) nominally covers the entire Brazilian population with a complete range o f services free o f charge. However, it effectively i s the only health service for over half o f the population (IBGE, PNAD, 1998),but is the main provider o f care for the poor. Brazil's federal structure and the decentralized nature o f the SUS make the financial flows difficult to track and monitor, which inturnmakes accountabilities diffuse and difficult. Despite continuous upgrading, existing information systems do not permit accurate identification o f how resources are allocated within the context o f SUS, nor how expenditures are executed and services provided at the health unit level. Information i s lacking regarding how much SUS as a whole (including the federal, state and municipal governments) spends on hospital and primary care. The levels o f efficiency inhealth service provision are not systematically documented. This study assesses how the processes o f allocation, transfer and utilization o f resources are conducted at the different levels o f the system. The study provides valuable information regarding the reality o f the executing units o f the system and how these relate to the central levels. It also seeks to identify problems related to financial flows, analyze how resources are used at the local level, and estimate their impact on the efficiency and quality o f health services in general. In this respect, the study provides a basis for improving the entire cycle o f public resource management processes (i.e., planning, budgeting, budget execution, input management, and health service production) in the health sector, which together help to bolster good governance in health care delivery. Specifically, the study seeks to survey and describe how public expenditure i s allocated for each type o f health unit, program or health program; assess the extent to which the resources transferred to states and municipalities are used for the purposes for which they are intended; collect evidence o f delays and slippages inbudget executionby state and municipal secretariats and service provider units and how these problems affect service delivery; and offer a set o f policy recommendations to improve efficiency inresource management and the quality o f care inthe SUS. The survey was based on a sample o f six states, 17 municipalities in those six states, and 49 hospitals and 20 outpatient units inthe sampled municipalities. While the sample i s not statistically representative o f SUS as a whole because o f its small size, an effort was made to capture a variety o f situations found in the Brazilian federation so that the findings would exemplify typical conditions found in SUS. PlanningandBudgeting The planning and budgeting process in SUS - similar to that o f Brazilian government institutions in general - i s well structured but overly formalized. Its complexity and bureaucratic formalism limit its usefulness as an effective management tool and as a basis for holding public entities accountable. I t s main characteristics and limitations are summarized below. 0 Legally mandated deadlines for the process o fplanning and budget preparationand delivery are usually met with few delays. However, the use o f data and analysis to identify priority problems ina given locality and as a basis for planning i s rare. Plans are often made on the basis o fthe previous year's plan or followingthe guidelines from the Ministryo f Health. .. 11 States and municipalities suffer from a serious lack of capacity to develop evidence-based plans to guide their health policies and interventions. Planning at the level of health facilities i s non-existent. The planning process i s truncated; little consistency and articulation i s evident between the various documents and stages of planning. Worse, once the planis submitted, it i s usually not consulted or usedto guide decision-making. The plans present objectives and targets, but almost never define articulated strategies and actions to meet them. Inmany cases, the plans constitute declarations of intentions rather than maps of how to arrive at desired outcomes. Participation o f the various actors involved, including the expected accountability structures, such as the Health Councils, is insufficient, largely ineffective and potentially counter-productive. Planning and budgeting are disconnected, especially at the local level. The lack o f cost parameters for services to facilitate forecasting of resources required for programs results in the widespread use of past values as the main basis for the new budget. This reduces the validity of the budget itself as well as its usefulness as a management tool. Strategic and financial data neededto develop plans and budgets are often centralized inthe Finance or Planning Secretariat and not often made available to the Health Secretariat and or unit managers. Managers o f most public facilities (primary, diagnostic or hospitals) have limited or no authority to plan service provision, define their budgets, reallocate resources or manage inputs. They generally do not manage human resources or control their payroll, and therefore execute only a small portion o f their budgets. Smaller facilities have no internal financial informationwhatsoever. Budget Execution The weaknesses inplanning and budget formulation is further evidenced bythe widespread practice observed at sub-national levels o f significantly modifying allocations during the budget execution phase often ignoring priorities specified in the planning process. Therefore, it is through the analysis of budget execution that real allocation priorities become evident. In addition, budget execution also affects the efficiency and quality of service provision because it determines how the secretariats and the front-line units perform key management functions such as purchasing and distributing medicines, supplies, and equipment. The most commonproblems are as follows: Significant changes between the initial budgetary allocation and the amount actually available limit the benefits of planning and financial forecasting. The frequent delays observed in the releaseof budgeted funds results intheir suboptimal use by managers. For example, some of the "frozen" funds canbe releasedonly at the end of the year, leaving little time for purchases. The unpredictability and delay in funding release is also applicable to federal transfers. Frequently, the "committed" expenditure is usually less than the "real" allocation due to delays in releasing funds, the slowness of the tendering process, and to the sluggishpace of financial processes in general. Payment delays raise costs and result inrelatively low levels of spending. ... 111 Municipalities have little capacity for robust budgetary execution due to a lack of qualified personnel and limited autonomy and decision-making authority o f line secretariats and health facilities. Most o f the states and many municipalities do not comply with the constitutionally-mandated minimum percentage of their finding to be spent on health, even though some spend considerably more. Federal transfers do not compensatefor this inequality inspending. At the level of the state and municipal secretariats, the system for budget monitoring, control and reporting is well structured, but focuses on compliance with legal standards and financial control, with little concern for assessing results. At the facility level, monitoring and oversight i s rare. A multitude of parallel reporting exists associated with programs having restricted fimding andor specific payment mechanisms. This consumes considerable resources and time, thus increasing administrative costs inthe secretariatsand the operational units. Availability of disaggregated data on budget execution i s limited. This hampers tracking actual application of budgeted resources, including federal transfers, and evaluating the efficiency and effectiveness of resource use. Managementof SuppliesandMedicines Inthe health sector, management of supplies (e.g., fiom acquisitionto use) consumes a substantial portion of financial resources (about 20 percent of the total) and can be a major cause for inefficiency and loss. The current norms governing the process of government purchases are effective inlimiting (but not eliminating) the likelihood of misappropriationof resources, but at the same time, their strictness and lack of flexibility create significant distortions. The complexity and rigidity of the rules controlling the process of tendering, and the time lines stipulated, require a degree of fine-tuned planning which i s rarely found in practice. Long drawn-out buying processes and extended terms of payment encourage suppliers to build additional cost into the prices they quote, and make it impossible for hospitals to take advantage of the best opportunities, fkequently ending up causing a delay in supply. Delays in buying, stemming from the sluggishness of the process, are also very frequent in the service units, resulting inlower quality, interruptedpatient care, and a large number of costly emergency purchases. The inadequate control of stock combined with the existence of multiple stocks within service units and inefficient methods of dispensing drugs to inpatients, contributes to considerable waste, loss and misappropriation, possibly as highas 10percent of the total. Poor planning, excessive centralization o f purchasing decisions, and an overly rigid legal framework tend to result in a mismatch between the supplies required and those actually made available. Managementof Equipment andInstallations Acquisition and maintenance of equipment and physical plant i s among the most costly elements of any health system. Inefficiency inthis area can therefore be a significant source of cost escalation. In recent years, the Ministry of Health (MOH) and state and municipal health secretariats have iv attempted to achieve more rational planning of equipment purchases and distribution. Nevertheless, the findings reported herein demonstrate that most units still encounter serious difficulties in maintaining installations and equipment, with significantly negative consequences for the quality and efficiency of treatment; but to date facilities have not been held accountable for the management of equipment and installations. e The acquisition of equipment i s overly dependent on the availability o f irregular federal investment funds. This impedes systematic needs assessment and capital investment planning. In many states and municipalities, there are no predefined and transparent criteria for distributing equipment that periodically becomes available. Due to a lack of a consistent program and sufficient funding for preventive maintenance, the frequency with which equipment breaks down results inservice interruptions. Inaddition, to the obvious quality implications, this situation results in higher costs because poorly-maintained equipment has to be replaced sooner. e Physical installations are often in a state of disrepair, which again undermines the quality of services and their continuity. It also contributes to increased expenditure when major remodeling has to be undertaken or new installations built. Managementof Personnel The rigid legislation governing human resources inthe health sector makes management of human resources difficult and burdensome. However, the problems identified inpersonnel management in the health secretariats and units - principally those of the public sector - are not solely due to limitations and distortions imposed by legislation. Many problems are related to management practices that result in inefficient use o f resources, and in some cases, an absence o f management. More fundamentally they are grounded ina complete absence of manager accountability. The mainproblems are as follows: e Inefficient staff mix (by category and level) as well as poor staff allocation practices. Often there exists an excess of poorly qualified personnel combined with a shortage of qualified personnel. This i s principally the case in smaller service units as well as for managerial positions systemwide. Absence of an effective system for incentives and performance evaluation, and of opportunities for professional advancement. When incentives exist, they often become generalized and incorporated into fixed remuneration. e Low level of remuneration for qualified personnel which results in well-qualified staff seeking positions elsewhere. Highrotation o f personnel compromises continuity o f care. ManagementofProductionand Quality Service and quality management i s in its infancy. Few health secretariats or units regularly collect data on productivity, efficiency, or quality. In some cases, the classic indicators of productivity (average hospital-stay, turnover o f beds, occupation rate) and quality (mortality, hospital infections) are monitored, but rarely used for decision-making, which contributes to the inability to hold providers accountable for their performance. The data gathered through this survey show, for example, that doctors work fewer hours than the number of hours contracted, while still producingthe same number of consultations. This situation V i s typical of public facilities where "real" working hours are negotiated between doctors and managers, and have little relation to "contracted" hours. The reduced time spent with patients may also compromise quality of care. Inaddition, 40 percent of the cancellations o f scheduled surgeries reported in the survey are attributed to internal management problems and inefficient use of resources, such as the absence of medical or support staff, lack o f materials, the failure to sterilize the equipment, etc. The survey inquired about the principal problems affecting the service offered and its quality. The principal problems as identified by state, municipal and facility managers include: shortage of medical drugs, lack of personnel, limited installed capacity to deal with demand inoutpatient units, and lack of medical supplies. These are all related to shortcomings in resource management practices detailed inthis study. Hospitals managers also report poorly qualified personnel and low quality hygiene practices (e.g., raising the risk of hospital-acquired infections) while outpatient managerscitiedthe lack of or unavailability of diagnostic and therapeutic equipment. MainChallengesandRecommendations The analysis o f the quantitative and qualitative results shows the existence o f various problems, which impact negatively on the quality and effectiveness o f health services provided by the SUS, as well as on the cost of these services. These are grouped into four categories below, with recommendations for how to improve them. Fragmentation of theplanning and budgetingprocess Synchronize and align the processes of planning, budgeting, execution, and information, and orient them toward performance. Planning should be the basis for defining performance targets. Plans should contain a limited set of easily measurable performance goals. Measurement of activity costs would be an important complement. As such, the MOH should support the installation of cost accounting systems at the facility level, particularly inhospitals. Consolidate the transfer of fundingresource-by-resource and link growth in financing to growth in performance, thereby rewarding good performance and penalizing low performance. The existing transfers can be streamlined based on broad functional/programmatic categories that are already well-accepted in the sector (e.g., Primary Care, Hospital Treatment of Medium and High Complexity, etc.).2 The states and municipalities could then allocate the funds received through these block transfers to specific programs, based on their own plan and budget. The formula for determining the distribution of the transfers should be guidedby explicit policy criteria such as (i) attenuation of inter-regionalljurisdictional inequality in health outcomes and access to services, or (ii)performance enhancement at the unit level (i-e., greater efficiency and better quality, as measuredby specific, results-oriented indicators). Inflexibility and complexity in budget execution Develop and introduce organizational arranpements that give the management units increasing levels o f the freedom of action and authority to make decision on the management of resources. The pace of granting such autonomy must be calibrated with each unit's demonstrated capacity, however, and the capacity of the central agency (e.g., health secretariat) to monitor and control its performance. On a pilot basis, some of the large hospitals (e.g., referral units), and possibly regional health districts, can be granted full autonomy to manage its finance and human and material resources. It would be best to start with hospitals that already are official budgetary units Inearly 2006 the MOHapproved aregulation mandatingthe consolidation oftransfers into six block grants. vi and therefore have some experience with autonomous input management. For smaller units with more limited administrative capacity, specific aspects of decision-making authorities could be delegated. Some could become budgetary units, whereas others may need to be given less autonomy. For each case, a preparatory study should be conducted to determine the exact level of decision-makingeachof the authorities i s to be delegated. Lack of managerial autonomy, incentives and capacity Strengthen and professionalize management capacity. The Ministry could promote adoption of modem management techniques by the secretariats and health units. Such techniques would include management of decentralized personnel; management of purchases and stocks that facilitates estimation of needs, programmingo f purchases and better control o f stocks; management of equipment and installations that enables monitoring of the state of the equipment and its permanent maintenance; evaluation of activity costs and efficiency; evaluation of results interms of coverage and performance indicators on effectiveness and quality of services. It would be necessary to revamp human resource policies (e.g., better structuring o f health care and management careers, systematic training policy) to make careers in the public health sector more attractive. Apply mechanisms to strengthen accountability, such as management contracts that make the administrators focus on specific goals and measurable results. This instrument could serve as a basic mechanism for planning, monitoring, and evaluation. Greater autonomy granted to specific facilities should be balanced with clear performance expectations (targets) and ex-post accountability. Inusingmanagement contracts as a tool of accountability, a mechanistic application of "reward and punishment" should be avoided. Instead, the performance targets should be used as references around which the secretariat and the unit can develop on-going reviews, dialogue, and appropriate corrective measuresto enhancethe unit's performance. Inadequate management information Establish strong monitoring systems that aim to improve organizational performance. These systems should supply usehl and clear information for internal management, including data on progradunit performance that permit comparisons with targets as well as among the units themselves. vii 1. INTRODUCTION Brazil has made significant progress inhuman development over the last decade, reflecting gains in health status, education attainment and social assistance. Thanks to a series of policy innovations in each o f these sectors, equity of access has increasedconsiderably. Inhealth, consolidation of public financing, organization of the sector into a country-wide system (Unified Health System, or SUS), and the greater emphasis on primary care and control of infectious diseases have been critical for these improvements. Significant challenges remain, however. Social services continue to suffer from inefficiencies and poor quality. Given high public debt and tax burden, which in turn may constrain future public spending, a case can be made that without improvements in the efficiency and quality of social service delivery, system affordability and sustainability would be increasingly threatened, while equity gains obtained in recent years may be difficult to sustain. Financial authorities are increasingly concerned with the growing costs of health care, which represent approximately 11 percent of public expenditures. A recent study estimates that at current levels of health system inefficiency, by 2025 total health spending as a percent GDP will increase from 8 to 12 percent while household spending on health as a percent of income will rise from 5 to 11 per~ent.~ Increasing the efficiency and effectiveness in the use of health resources to contain rising costs i s perhaps the greatest challenge facing the Brazilianhealth system. Many of the challenges facing the health sector are linked to governance failures - the lack of incentives and accountabilities that ensure that services are affordable and of acceptable quality, both essential to raising health status. Public spending constitutes a powerful instrument to influence performance in publicly-funded providers. The structure and management of funding flows to these providers strongly influences the incentives they face. In health, governance also refers to the means by which a provider organization (such as a hospital), its managers and staff are held accountable for their behaviors (such as resource management, planning, service monitoring, financial management, etc.) to deliver services with quality and efficiency. Accountability i s a key concept that captures the responsibilities of actors and the consequences they face based on performance. That means that poor performance i s sanctioned and good performance rewarded to promote quality and impact. Where there is no accountability those that excel and those that under- perform are treated equally; a system that is unfair, and compromises quality and impact. In short, governance impacts the quality of public spending, the effectiveness of resource management, and ultimately, the efficiency and quality o f service delivery. This report assesses resource allocation and management, planning and budgeting functions, and budget execution at different levels of government for public expenditures on health services. The emphasis i s on understanding the incentives generated for service providers, and the overall soundness of the accountabilities established inthe public health services expenditure ~ystem.~The analysis seeks to identify weaknesses of accountabilities for service provision that stem from the structure and process of intergovernmental and provider funding flows and related managerial practices. Marcos Bosi Ferraz (2006). "Brasil2005: Desafios do Sistema Saude," Economiu du Suzide On-line, Centro Paulista de Saude, http://www.economiasaude.com,br/new/destaques?id~destaque=8. The degree o fmanagerial autonomy (for public providers), and the effectiveness of the regulatory framework are also critical elements o f the governance regime for healthcare providers, and these are discussed inanother World Bank study: "In Search o f Excellence: ImprovingHospital Performance inBrazil (2007, forthcoming). The paper draws on and enhances an acceptedgovernance tool, public expenditure tracking, inboth tracking funding and analyzing the governance and corresponding managerial challenges that impede effective public sector financing. The tracking survey instrument (PETS) was applied to a sample of states, municipalities and healthcare facilities inthe country in2004.5 The surveywas necessarybecauseof the complex financing structure of SUS that makestracking of fund flows difficult and the inadequacy of the existing information systems, which, despite continuous upgrading, do not permit accurate identification o f how resources are allocated within SUS, nor how the expenditures are executed and services provided at the health unit leveL6 Similarly, information is lacking regarding how much SUS as a whole (including the federal, state and municipal governments) spends on hospital and primary care. The levels of efficiency or inefficiency regarding health service provision are neither known nor documented.' The PETS methodology enables systematic collection of relevant information at the secretariat (state and municipal) and facility levels to gain insights into institutional and managerial causes of inefficiencies, and their effects on the quality o f health services. Specifically, the study seeks to survey and describe how public expenditure i s allocated for each type o f health unit, program or health action; assess the extent to which the resources transferred to the states and municipalities are used for the purposes for which they are intended; collect evidence o f delays and slippages inbudget execution by state and municipal secretariats and service provider units and how these problems affect service delivery; and offer a set of policy recommendations to improve efficiency inresource management and the quality of care inthe SUS. The report i s dividedinto 5 chapters. This first chapter presentsbackground information on SUS, its structure, financing arrangements, and planning and budgeting systems. The following four chapters report on the survey findings. Chapter 2 reports on planning and budgeting in SUS. Chapter 3 centers on materials management and Chapter 4 focuses on human resource management. Chapter 5 presents the results of quality and production management. The final chapter presents summary conclusions and recommendations. METHODOLOGY This study applies a modified approach of the Public Expenditure Tracking Survey (PETS) methodology developed by the World Bank and applied ina number of countries. The methodology i s adapted to the complexities of resource allocation in Brazil's Unified Health System. In this study, PETS was applied to a sample of states (6), municipalities (17), hospitals (49) and ambulatory units (40). Six areas of analysis were included in design: (i)planning and budget formation; (ii) budget execution; (iii) management; (iv) equipment and plant management; material (v) human resource management; and (vi) production management. Data was collected through a survey instrument that was applied in situ by surveyors, complemented by interviews with key personnel and analysis of secondary data. The annex contains an in-depth discussion o f the survey design, methodology and analysis. The sample includes six states (Sa0 Paulo, Rio de Janeiro, Rio Grande do Sul, Ceara, Mato Grosso, and Amazonas) with a variety o f socioeconomic characteristics and differentiated levels o f institutional development, and 17 municipalities within these six states, and hospitals and outpatient clinics in these jurisdictions. The sample is too small to be statistically representative o f SUS, but is sufficiently diverse to be illustrative o f its systemic problems. See the Annex for additional details o f the sampling and other methodological considerations. It is not unusual, for example, for the director of a public hospital to be unaware o fhispayroll costs and the total amount o f resources spent inhishospital. 7 A forthcoming World Bank report, In Search of Excellence: StrengtheningHospital Performance in Brazil (2007), examines efficiency o f hospital services inBrazil. 2 CHALLENGESOFRESOURCEMANAGEMENT INBRAZIL'SHEALTH SECTOR Health status inBrazil has significantly improved inthe last 10 years: infant mortality decreased by 47 percent in 14 years (from 47.5 per 1,000 live birthsin 1990 to 25.3 per 1,000 in2004). Mortality rates from vaccine-preventable diseases in children are negligible; and diarrhea diseases are the cause o f less than 7 percent o f all deaths among children under 5 years o f age. Brazilians are living longer and are much less likely to die from communicable diseases. While Brazil has a relatively high incidence o f HIVIAIDS compared to the rest o f Latin America, the number o f new cases annually has now leveledo f f due inpart to improved surveillance, effective detection measures, and aggressive prevention and education campaigns. Despite these gains, two important challenges have come to the fore. First, non-communicable diseases (NCDs) and injuries are now the leading causes o f death with cardiovascular diseases, injuries and cancer the top three causes, accounting for 62 percent o f all deaths. Continuing with the status quo will add US$ 34 billion to the country's health care expenditures over the next decade, and also result in US$38 billion in lost productivity,' Without shifts in how care i s provided and good health promoted, the additional cost o f treatment combined with lost productivity (due to earlier death and disability) could consume an additional five percent o f GDP over this period. Second, despite the fact that more than 97 percent o f all births occur in hospitals, which should mean better care, neonatal mortality currently represents over 60 percent o f infant m ~ r a l i t y .Addressing neo-natal mortality requires establishment o f effective care referral systems ~ as well as quality improvement inhospitals. Since the launching o f Unified Health System (SUS) in 1988, change has been incremental but steady. The main strategy o f Brazil's health reform (Reforma Sanitaria) has been the decentralization o f service provision from the federal government to the municipalities, and to a lesser extent, to state governments. All states and most large urban municipalities have gained full management responsibility (gestzo plena) for higher level care." A second key element o f the reform was the establishment o f a federal financing system based on grant transfers. Accounting for over 80 percent o f federal health financing, this system represents an important shift away from directly paying for (and operating) services to financing programs and health care through sub- national entities. A praiseworthy achievement o f decentralization and the grant-based financial systems has been the financial buy-infrom states and municipalities, which currently finance nearly 45 percent o f all publicly funded health care (See Table 1.1 below). The federal government finances the difference through grants transfers. * Status quo refers to under-provision o f health promotion and prevention interventions, weakness o f referral systems, lack o f dissemination and use o f cost-effective treatments, and the absenceo f functional networks to facilitate the application o f case management protocols across all levels o f care. See Addressingthe Challengeof Non-communicableDiseases in Brazil, World Bank, Report No. 32576,2005. Deaths occurring during the first 28 days o f life. loBetween 2002 and 2005 all states and 667 urban municipalities signed agreements for full management o f the delivery systems under their jurisdiction. This means that these sub-national entities are responsible for all publicly-financed health spending and delivery within their jurisdictions. This entails a combination o f direct management o f public health programs and publicly-owned facilities as well as financing o f private providers under contract with SUS. (IN 2004 R$THOUSANDS) SpendingIndicator 1995 2004 * Growth O h95-04 Federal health expenditure 35,138 35,611 1.3 States health expenditure ' 11,296 13,447 19.1 Municipalhealth expenditure 10,040 15,640 55.8 TotalPublic HealthExpenditure 56,474 64,698 14.5 %ofPublic Expenditure 10.98 10.17 %of GDP 3.89 3.66 PrivateHealthExpenditure 67,312 81,896 21.7 % of GDP 4.64 4.64 Household HealthExpenditure 53,909 62,416 15.8 % o fHousehold Consumption 6.20 6.40 Total HealthExpenditure 123,785 146,594 18.4 % o fGDP 8.52 8.30 YOPrivate 54.38 55.87 YOPublic 45.62 44.13 * estimated. The health system still faces structural and organizational challenges that may compromise its ability to achieve further gains. For its level of income and spending Brazil still exhibits comparatively low health status indicators. In 2004, total health expenditure was estimated at R$ 147 billion (US$ 50.7 billion), or about 8.3 percent of GDP. Public resources accounted for 44 percent of spending while private spending constituted the remainder (Table 1,l)." health Real spending has increased an average of 2 percent annually between 1995 and 2004. Over this period real annual government and private spendingrose on average 1.6 and 2.4 percent respectively." Comparing spending with health indicators such as life expectancy, infant mortality, and maternal mortality, places Brazil at an average performance level among middle income countries and in Latin America.13 Other countries spend less on a per capita basis (adjusted for purchasing power I'The private sector covers around 45 million people. Between the SUS and the private sector, the system includes 7,400 hospitals (65% private), with 471,000 beds, 6,000 outpatient clinics (75% public), and 11,500 diagnostic service units (94% private). l2Government health spending as a percent ofpublic spending has decreasedslightly during this period. However, this indicator oscillates by year depending on estimation methods and the availability o f data. For example, it was estimated at 12 percent in 1997, but declined to 10 percent in2003. As described inthis report, such estimates are hamperedby the poor quality o f data available on health spending at the sub- national level. Between 1995 and 2004, average government health spending represented 10.8 percent o f public spending. l3A WHO report on the performance of national health systems ranked Brazil as 125thamong 191 countries and 28th in the Latin America and the Caribbean region (out o f 33). In spite o f methodological and data issues, the results are indicative o f the low performance o f the Brazilian health system when relating outcomes to expenditure (WHO, 2000). 4 parity)I4and as a percent of GDP, but are able to achieve equal or superior health outcomes for their populations. However, it is important to note that other factors can influence comparisons between spending and outcomes, such as access to water and sanitation, education of girls, and the distribution of resources. (Medici, 2005; World Bank, 2003).15 Generally, spending alone i s not a good predictor of health outcomes across countries.I6 However, even controlling for these factors, some countries perform better than others at similar levels o f spending and economic development (World Bank, 2003). This suggests that additional factors may modulate the effectiveness of public spending on health. Policies that direct spending to address the health needs of the poor and improve the quality of spending can contribute to better health outcomes. For example, higher levels of spending on high complexity hospital care may have little impact on overall health outcomes. The study aims to understand how resource allocation and management may contribute to overall system performance. susANDITS ARRANGEMENT mNANCING Structure The health reform process of the 1980s and 1990s redefined responsibilities within Brazil's public health sector. SUS was established in the 1988 constitution, and subsequent basic legislation guiding its implementation and functioning, was a culmination o f this reform process. The main feature of the reform was decentralization o f health service delivery to the municipal level. According to the basic SUS legislation, the responsibilities within the system are divided as follows: 0 Coordination and definition of policies: this i s basically the responsibility of the Ministry of Health, although the states and (to a lesser extent) municipal levels of government have a complementary role to play in adapting and prioritizing the federal policies to local circumstances. 0 Regulation: this i s also essentially a federal responsibility exercised by the Ministry of Health and by a number o f specialized autonomous agencies such as ANVISA (the National Agency for Health Surveillance) and A N S (the National Agency for Supplementary Health).I7 The states and municipalities can also undertake a complementary regulatory role within their spheres o f influence. 0 Financing: this role i s shared among the three levels of government (federal, state and municipal) but the decentralization process and the changes introduced in the financing arrangements of SUS over the years have led to a reduction in the importance of federal financing and increased responsibilities of the states and mainly municipalities (See Table 1.1). l4Purchasing power parity is an economic method o fusing the long-run equilibrium exchange rate o f two or more currencies to equalize the currencies` purchasing power. See: Medici, Andrk. "Financiamento ptiblico em satide na Amtrica Latina e no Caribe: uma breve analize dos anos 1990. Inter-American Development Bank, Technical Health Technical Note No. 3: 2005; World Bank: World Development Report 2004: Making Services WorkFor the Poor. Washington: World Bank, 2003. l6M6dici found that public spending as a percent of total spending was not correlated with health outcome measuresinLatinAmerica. The author did not analyze the association between outcomes and total per capita spending or spending as a percent o f GDP. I'The A N S regulates and supervises private health insurance plans since 1998. 5 Service delivery: as a result o f the reform, service provision i s currently conducted on a more rational basis with a clearer division o f responsibilities. In general, primary and secondary care i s the responsibility o f the municipal level and management o f high-level referral facilities is that o f state governments. However, a number o f states operate secondary-level hospitals. The federal govemment hardly participates inthe direct delivery o f health services with the exception o f certain specific areas (e.g., teaching hospitals). Many SUS-financed services are in effect delivered by private philanthropic or profit- making enterprises either under contract with SUS or through special agreements known as convenios. The Basic Operational Norm 01/96 defines the levels o f SUS implementation inthe municipalities according to the capacity and interest o f the municipal secretariats to assume the different levels o f services and programmatic activities.'* These are divided between: 0 "Full management (Gest6o Plena) o f primary care", under which the municipality is responsible for all primary care activities but not for delivering higher level services; and 0 "Full management o f the municipal health system," under which the municipality assumes total responsibility for managing all services and healthunitswithin its geographical area. By December 2000, 10% o f all Brazilian municipalities were qualified under the full management scheme o f the municipal health system and 89% in the full management o f primary care system, while 44% o f states were qualified under `advanced' or `full' management regimes. However, the operation o f the entire system i s made highlycomplex by the enormous diversity o f local conditions and the different levels o f technical and fiduciary capacities o f the sub-national (especially municipal) governments and their facilities. Financing The federal government, through the Ministry o f Health, i s the main financier o f the SUS, with federal financing accounting for around 53% o f the total public expenditures on health. Public resources amount to just over 45% o f the total national expenditure on health, including out-of- pocket contributions by families that account for almost half o f all private spending. Figure 1.1 presents a breakdown o f spending by source. Given the decentralized structure, much o f federal expenditure i s transferred to state and municipal governments through a variety o f transfer and payment mechanisms. Intotal, around two thirds o f the Ministry o f Health expenditure i s transferred to the state and municipal health secretariats or to private healthproviders through more than 70 different m~dalities.'~ ~~ ~ Equivalent classification defined for the states: State level `Full' and `Advanced' Management. A recent, 2006 policy initiative aims to collapse these transfers into six block grants. 6 The Health ~ ~ ~ ~this is tire:first stage inthc ~ I ~ process.i it~defll~icsthc~priority lines ni' n d a ~ ~ i ~ n i ~ ~ e raiid action strategies inorder t ~ ~ ~ ~ i o ~ fishthe programs, o ctives, and targets o f ~~~1~~~ prllic>. This agcnda is submittedand appr the Iicnfth The Health Plan: this document i s prepared annually to update the sector's diagnosis, strategies, priorities, programs, objectives, targets and assessment indicators. The Health Plan must include a Targets Chart (Quadro de Metas) based on the Health Agenda, and form the basis for programming and budgeting. The Plan must also be submitted and approvedby the Health Council. 0 The PPI (Negotiated Programming Exercise) consolidates the health plans o f the different levels o f government (state and municipalities there in) in order to bring their objectives in line with the relevant targets. 0 The Management Report i s the final step inthe planning process. Developed at the end o f the budget year, this report assesses the performance o f the activities carried out and the results achieved, and, in principle, should compare the results with the objectives and targets fixed inthe Health Agenda and Health Plan. Federal Transfers The transfers from the Health Ministry to the states and municipalities and the direct payments to service providers represent the largest part o f federal health expenditure and one third o f the total amount spent by SUS. The three main categorical mechanisms for these transfers are outlined below. Tables 1.2 presents summary features o f specific mechanisms for each category while Box 1.1 describes recent changes in SUS financial flows. Figure 1.2 schematically illustrates the financial flows inSUS. 0 Payment for services delivered: this consists o f payments to hospitals, outpatient departments, clinics and professionals for services provided to SUS based on a fixed rate schedule. Traditionally, payments were made directly to health care providers (e.g., to hospitals through the Hospital Information System and Authorization for Hospital Admissions systems [ S W A I H ] and to ambulatory facilities through the S W S U S system), depending on the quantity o f services produced. However, direct federal payments to providers have been gradually replaced in recent years by "fund-to-fund" transfers, for the corresponding amount, to states and municipalities, which in turn pay providers. Public providers are funded through state or municipal budgets, while private providers are paid by states and municipalities based on AM and SIA bills. 2' Direct fund-to-fund transfers: these consist o f regular and automatic grants transferred directly from the National Health Fund (FNS) to state and municipal health funds. These transfers are earmarked for financing SUS programs and services. Nearly all transfers for financing health services (primary, medium and high care) are channeled through this system. The funds are then used by the state and municipalities to complement their own spending to cover facility and program budgets. 0 Agreements (convenios): these are specific but formal agreements drawn up betweenpublic authorities and public and non-profit, private providers. They usually fund specific activities, investment programs, or service provision in the non-profit sector. The convenio modality was historically used between public entities, but was extended to non-profit institutions. 2' Direct federal payments to providers throughSIHand SIA decreased from 69% o fMOHtransfers in 1995 to 19% in2003. These federal payments were eliminated in2005 and merged into fund-to-fund transfers. 8 0 Other special incentives and pros-ams: these are resources for financing specific actions or health inputs defined by the Health Ministry (e.g., special drugs) or aimed at specific population groups (such as the Program to assist indigenous populations). Generally these funds canonly be applied to the programto which they are linked. The Health Ministry annually defines state-by-state caps on each type of transfer and/or payment basedon a historic series o fproductionand payments within technical parameters (e.g., one hospital admission per inhabitant/year) and targets set for specific programs. The amounts transferred to the state/municipal healthfunds usually have to be transacted inaccounts that are linked specifically to the programor the itemof expenditure to which they are allocated. While this system is intended to reduce the scope for divert resources from their original purpose, it involves high transaction costs for the local administrators.22 TABLE1.2: SUMMARY CLASSIFICATIONOFFEDERAL TRANSFER MECHANISMS TYPE MECHANISM PROGRAMIACTION BASEFORCALCULATION Tuberculosis Control Global value fixed on per Hypertension Control capita basis FixedPAB Diabetes Control (Basic Care Oral Health Threshold) Children's Health Women's Health Health Surveillance Proportional value depending Direct/ Basic Medicines Program on production or coverage o f automatic Variable PAB Nutritional Deficiencies Program eachprogram Transfers Community HealthAgents Program (fund to fund) Family HealthProgram P S F Surveillance Health Surveillance Value proportionate to Epidemiology and Disease Control production or coverage Mediumand High Outpatient and hospital care/ mediumand Same as AIH and SIA Complexity high complexity AIH/SIH - Payment for hospital admissions according Value per admissionpre- Authorization for to tariff calculated on basis o f procedure or fixed by tariff; includes fees, hospital treatment involved hospital services and special Paymentfor admissions materials Services SIA -Outpatient Payment for treatment received,: Value per procedure or Delivered Information - primaryibasic (consultations, small treatment, pre-fixedby tariff System cures) - high complexity (tomography, magnetic resonance, haemodialisis) Covenants Covenant system Payment defined by object of covenant Negotiated value/ case to case basis Direct transfer Special medicines Global value Other Mental health drugs incentives Public emergency and special Health campaigns, programs NationalHealthFund Direct Payment Hospital and outpatient care for Value per admission and indigenous peoples. procedure, pre-fixedby tariff 22Inmost cases, every earmarked fundrequires a separateaccount, including accounting bookkeeping, and reporting procedures. Since there were until recently nearly 100 different payment mechanisms, this practice impliedconsiderable managerial inputs. 9 23Law 9.656198,Article 32, and A N S ResolutionRDC 18 ofMarch30, 2000. 10 2. PLANNINGAND BUDGETINGINSUS A key function of government planning and budgetingis to ensure that allocation and utilization of the scarce public resources are properly aligned with the government's policy priorities and that the funded activities are implementedefficiently and effectively to achieve desired results at reasonable costs. While definition of policy priorities i s fundamentally a political process, the political decisions should be supported by systematic considerations of the population's needs and of the appropriate roles of the public sector, and should be disciplined by the availability of financial resources (i-e., hardbudget constraint). This is what effective planning and policy analysis offer. Once policy priorities (i.e., what social needs to be addressed) and programs (Le., how these needs are to be satisfied) are defined, the government assigns resources through the annual budget process. Smooth integration of the planning phase and budgeting phases, including substantive consistency between the two, is a fundamental requirement of sound public policy and expenditure management. Effective integration of planning and budgeting can be compromised in a variety of ways, including the weak analytical and evidentiary basis o f the plan, lack of financial considerations in the planning phase (which leads to a plan being a pure wish list), incremental budgeting where resource allocation i s determined as an increment of the previous year's budget irrespective of the recognized needs and past performance, and the existence of multiple planning processes for different purposes. A good budget should be comprehensive in its coverage and transparent in its content. For example, all revenues includingnon-tax revenues such as proceeds of user charges and expenditures such as grant-financed activities should be captured in the budget. The budget documents should include sufficient details to allow policy-makers and outside observers to understand the government's policy and financial intents (e.g., functional or programmatic, and economic classifications) and accountability of resource use (e.g., administrative classification). The emerging trend is to link allocation o f financial resources to concrete service outputs, although this requires a fairly high level of technical sophistication, which i s not always present in developing countries. Once resources are allocated, budget management should ensure adequate control of the government's financial obligations and expenditure levels so as to prevent waste or unsustainable build-up of liabilities. A good budget system that facilitates efficient service delivery is characterized by credibility and predictability. On the one hand, a credible budget i s one which limits discretionary reallocation o f approved funds for other purposes during the execution phase. When lacking credibility, a budget is not able to guide activities of service delivery units in ways that are consistent with the previously defined policy priorities and operational plans, thus rendering the pre-definedpolicy objectives meaningless and diluting accountability of service delivery units. On the other hand, a good system maintains predictability regarding the amount and the timing of fundingreleasesto service delivery units so that the latter couldplantheir operational activities and deliver the services efficiently without disruption for lack of funds. Once the funds are spent and activities are executed, a good system leaves clear and proper records that account for the actual use of the funds, and insophisticated systems, information o f the outputs produced. 12 This chapter covers the process o f planning, budget preparation, and budget execution among the secretariats and health units o f SUS. It proceeds infour sections, examining first the current state o f planning, then budget preparation, budget execution, and concluding with a summary assessment o f the findings. PLANNING Planning i s the first stage o f the resource management cycle in SUS. At the planning stage, the health secretariats and units should conduct diagnosis o f the main epidemiological issues facing the population, effectiveness o f government interventions during previous periods, and prioritize hture actions to ameliorate the existing conditions. A well-crafted plan would be based on a balanced use o f top-down policy directives (emanating from the health secretariat and the Ministryo f Health) and bottom-up needs assessments (conducted at the facility level). The survey reveals that, in general, the informational and analytical bases o f the existing planning tools in SUS are precarious. Planning i s conducted mainly as a formal exercise to comply with the legal requirement rather than as an instrument to implement policy or as a basis for resource allocation. In a decentralized setting such as SUS, tension arises between the need to maintain a degree o f consistency in policy priorities across the system (as defined by the Ministry o f Health) and the purported benefits o f decentralization that should be gained from letting sub-national entities define their own, locally adjusted priorities. SUS has yet to develop ways to achieve a satisfactory balance between these competing rationales o f decentralized health policy management (see Box 2.1). Planning at State and Municipal Health Secretariats Figure 2.1 reports the survey responses regarding commonly identified problems in the health planning process. Three categorical problems are evident: (i)weak analytic bases; and (ii) fragmentation o f programs and priorities; and (iii) o f time for planning. lack Weak analytical bases of sub-national healthplanning: All the states and most o f the municipalities develop Health Agendas and Health Plans. The survey reviewed the informational bases o f these planning tools, and found diverse sources being utilized by state and municipal health secretariats. At the state level, these include: a diagnostic measure developed by the secretariat (4 states), the policies defined by the Ministry o f Health (3), followed by assessment o f the demand and needs, compliance with the requirements o f the Health Council and others (with 2 instances each). Assessing the experience o f previous years appears as an important source o f information in only one state (Cearb). Therefore, there i s evidence o f efforts to develop state health plans based on a survey o f problems and the local situation, although federal policy and programmatic directives exert considerable influence. Incontrast, municipalities havenot investedmuchindevelopingtheir own diagnoses as abasis for their health plans. Sixty percent o f the municipalities in the sample reported that they simply followed the Ministry's policies and programs in developing their own plans. This is followed by the diagnosis/survey o f problems conducted by the secretariat (53%), the assessment o f demand and needs (35%), experience from previous years and compliance with the requirements o f the Health Council (29%).24Planning by the municipalities i s therefore strongly influenced, or even directly determined, by the policies and priorities defined by the Ministryo f Health at the national level. 24 The percentages do notaddto 100%because of multipleanswers. 13 14 Except for a few municipalities, Health Councils have little influence on the definition o f priorities and allocation o f resources, which contradicts one o fthe basic principles o f SUS.25 Finally, in half the states and over one-fifth o f the municipalities, respondents report having little time for planning. This suggests that planning may be low-priority activity in these sub-national entities. Fragmentedprioritization: The survey also shows a wide dispersion and fragmentation o f priorities. The five programs and five interventions that were defined as priorities by the states and municipalities seldom coincided, resulting ina total o f25 different programs and 19 interventions. Two o f the 25 programs were mentioned by only two states, whereas none o f the 19 priority actions was mentionedby more than one state. Similarly, among the 17 municipalities inthe sample, 59 programs and 60 actions were mentioned, with only seven programs and one action cited by two or three secretariats. This dispersion suggests considerable autonomy in dealing with the local situation and needs, but it also shows that nationally-definedpriorities are not often respectedinthe sub-national planning efforts. Besides, the actions and programs defined as administrativepriorities inthe survey do not always figure inthe HealthPlanor Agenda (one state and several municipalities identifiedpriority programs and actions "forgotten" inthe plans, and ingeneral the correspondence i s not clear), which suggests autonomy i s not usedto draw up credible plans to guide the states' and the municipalities' healthpolicy interventions. . FIGURE PROBLEMSINTHEPLANNINGPROCESSMOST 2.1: OFTENCITED (yoOFRESPONSES) Lack of local instruments for problem identification Little time for Plan preparation Adoption of MOH programs and priorities Fragmented and uncoordinated programs and actiuties Lacklinsufficiency of funds Lack of timelstaff owrburdened Lack of informationon cost of actiuties Lack of personnel with planning expertise ReStNtUring of SMS to comply with sus Note: The total exceeds 100%due to multipleresponses. Planning inHealth Facilities As expected, planning is weak at the facility level. Although a large share o f the hospital units (75%) - especially larger units - in the sample develop some sort o f plan, only around 30% o f the outpatient clinics do so. When a plan i s prepared, this is frequently late vis-&vis the legal deadlines. Once again, the analytic bases o f these plans seem limited: among those hospitals that develop a plan, 69% base it on the previous plan as the main source o f information. The plans' ''See footnote 12 for the role o f health councils. 15 value in guiding the facility's performance management also seems limited: 36% of the hospitals use only production or physical targets (e.g., number of consultations and admissions, coverage indicators, etc.);2620% apply only financial targets; and 32% use bothphysical targets and financial ones (expected expenditures). Half of the hospitals surveyed perform technical and financial planningwithout correlatingphysical targets with the resourcesreq~ired.~' BUDGETPREPARATION Inthe budget preparationphase, the substantive content of the sector plans is translated into an action-oriented framework with specific amounts of resources allocated to each budget category. The extent to which annual budgets are well-linked to the problem identification and policy prioritization in the planning phase determines the adequacy of the annual budget in addressing important problems in the sector (as opposed to continuing to allocate resources to low-priority areas because of inertia). Budgeting i s also a domain of financial specialists. Ina highly technical sector such as health, the risk exists that a budget proposal i s drawn up by financial specialists without sufficient regard to the technical content that would have been developed by sector specialists in the prior planning phase. The survey results suggest that this divorce between the financial and technical budget formation processesis common at the sub-national level. Budget Preparation in Health Secretariats Compliance with legal calendar and requirements: Budget preparation follows a strict calendar. With only a few exceptions, the states and the municipalities inthe sample usually meet these legal deadlines in preparing their budgets. In addition, SUS mandates that the budget proposal be approved by state or municipal health councils. The majority o f the states and the municipalities in the sample report not havingtheir budget proposals approved bytheir healthcouncils, however.28 Linkingplanning and budgeting: All of the states reported using the Agenda and Health Plan as a basis for preparingtheir budget, along with previous iterations of the budget itself. Inthe municipal secretariats, the budget preparation process faces greater difficulties. Few municipalities use the Agenda and the Health Plan as a source of information for preparing their budget (only 5 of 17: SZo Paulo, Parintins, Sobral, Resende and Ivoti), and instead turn to the previous year's budget as the source of information. A review of the documentation reveals that programs defined as priority in the plan often have no resources directed to them inthe budget. This i s partly due to the government's strategic posturing whereby it attempts to keep the allocation at an aggregate level and avoid the fragmentation of resources and facilitate re-allocation across programs and actions duringthe implementation phase. Insome cases, however, the very detailed budget classification structure hinders flexibility during execution. For example, the State of SZo Paulo lists 41 programs, which apparently represent temporary priorities of the government as well as specific parliamentary amendments that "pulverize" resources. 26 but without linking them to financial execution 27 The main problems observed in the planning process, classified by order o f importance, are: financial limitations (73% of the hospitals), little autonomy in running the unit (48%), vague goals including those **without quantification (30%), and excessive red-tape or bureaucracy (27%). Only the States of Rio Grande do Sul and Ceara and the Municipalities of SBo Paulo, Resende, Sobral, Cuiab6 and Assis have had their budget proposals approved by the Health Councils. Mato Grosso had only its Multi-year Plan (PPA) approvedby the Health Council, but not the budget proposal. 16 Figure2.2 reports the maindifficulties inbudget preparation: lack of information on costs (cited by 67% of the states and 29% of the municipalities) and the absence/insufficiency of baseline financial data to guide the detailed budget preparation process, due to poor communications among the planning and budget/accounting sectors and the health secretariat (67% of the states and 35% of municipalities). FIGURE2.2: PROBLEMS INBUDGET PREPARATION MOST OFTENCITED RESPONSES (AS yo OF RESPONSES) Lack of qualifiedstaff Only quantitative/financial data Outdated information Aggregateddata, not allowing monitoring of programs Informationstrictly in accounting language Planning centralized in other secretariat Note: The total exceeds 100% due to multiple responses. noted by the interviewees. As shown in Figure 2.3, the most common problems are the failure to identify the source of funds and the entity responsible for each action or program (80% of the plans), the failure to estimate the cost of the actions (77%), and the absence of mechanisms or criteria designed to evaluate the plan's implementation (or achievement of the goals). One of the plans was 82 pages long, but 73 pages were spent describing the current situation; others included some quantified targets but with no relation to the main content of the plan and the expected actions. Overall, the planning and budgetingprocess for the SUS i s fragmented, and inconsistent between the various stages o f the planning process. Also noteworthy was the lack o f attention paid to detailed concrete action plans. A critical problem - though one not emphasizedby the interviewees -isthe absenceofdataonthe costs oftheproposedactions andprograms. Inthis situation, the 29The case studies analyzed the quality o f the planning and budgeting process through assessing the following features: inclusion of clear objectives for the plan, the itemization inprograms and delineation o f strategies, the definition of quantitative targets, the definition o f deadlines for each activity, identification of a person responsible for the activity, the identification o f the source o f funding and estimation o f the cost or expenditure tied to the activities, the inclusion o f a mechanism for evaluating plan execution, and the correlation between the plan and the budget. For each o f these items, the plan received a score o f 0 or 1 depending on its fulfillment of the criterion. The sum o f the scores was converted in a 0-1 scale, as displayed inFigure 2.3. 17 budget or the plan, or both, runthe riskofbecominga piece of fiction, useful only to comply with a legal requirement. In sum, the planning and budgeting process proves to be sophisticated in its formality and its instruments, but truncated and poorly integrated in practice due to the inconsistency between the documents and the stages that comprise the whole process. The structure of the budget ingeneral i s limited to general itemdheadings, thus hampering the identification o f priority programs and actions. This limitation makes it hard to follow and assess systematically the allocation of resources and the process of implementingthe budget. FIGURE QUALITY OFSTATEANDMUNICIPAL 2.3: HEALTH PLANS 0 0.2 0.4 0.6 0.8 1 1.2 Clear objectives Detailed actions & strategies Quantified targets Time-Iine Structured by programs Evaluation mechanism (for targets) Budgeted expenses Identificationof person in charge Identificationof finance source Average points State Plans Municipal Plans Budget Preparation in Health Facilities Lack of autonomy and haphazard budgeting; At the facility level, the availability of financial- budgetary information varies depending on their status as a Budgetary Unit3'and the degree of administrative and financial autonomy they enjoy. Most small-scale hospitals and outpatient clinics have no budget o f their own, nor do they manage most of the financial resources they consume. In addition, management's ability to monitor and control units' expenditures varies. Inthe sample, only 43% of the hospitals and 15% o f the outpatient units possess their own budget. However, an additional 30% of these facilities have some internal financial information. This usually entails petty cash for urgent and small purchases for emergency maintenance, small supplies, etc. Twenty- six percent of the hospitals and 55% of the outpatient units have little or no financial information at all (Figure 2.4). Hospitals with the greater administrative autonomy generally have a much higher level o f financial information since they are formally deemed a Budgetary Unit and are responsible for implementing their own budget. Even in facilities that are budgetary units, managers consider as "their" budget only that portion they execute directly. For example, most of the larger facilities manage - at most - the budget for 30A budgetaryunit is an administrative unit (e.g., a facility) that receives its own budget allocation, and manages at least part o f this budget. Facilities that are not a budgetary unit have no budget o f their own, and nearly all inputs are purchased and paidfor centrally. Inthe latter case information on the total spending for the facility is unavailable or difficult to access. 18 supplies (but usually excluding drugs) and small contract services (e.g., maintenance, cleaning and surveillance) but not their payroll. Lack o f information on personnel i s particularly problematic at the facility level. The majority o f the facilities have no budgetary or financial information about their expenditures for personnel, because these are managed and paid by a central level secretariat, with little or no involvement by facility managers. For this reason, managers commonly deem personnel expenditures as external to their budget and o f little concern regarding managerial responsibilities. In general, managers possess little information about their staff. This situation clearly limits the facility's responsibility for management and expenditure control. Despite the fact that payroll represents about 60% o f total costs, managers tend to regard their production costs as excluding personnel spending. Of equal concern, they tend to use these grossly underestimated values when generating cost information. FIGURE LEVEL FINANCIAL 2.4: OF INFORMATION INTHE HEALTH UNIT i l Cost management: At the facility level effective cost management is essential for efficient management of the allocated resources and for determining optimal allocation o f resources at the budget phase. Several major hospitals (24% o f the sample) set up a system for auditing costs, but only two municipalities have cost or expenditure data itemized by health unit: Cuiabh possesses a general cost auditing system installed in the units, and Rio de Janeiro uses a one-time analysis that estimated the expenditures per facility). All o f the Social Organization hospitals inthe State o f S5o Paulo have installed cost auditing system^.^' These systems are standardized, allowing inter-facility service cost comparisons. Nevertheless, these are the exceptions to the general practice, evident the '' Partial information i s characterized by the unit's recording or having information on part o f its expenditures, for example involving some cost items but not others; the unit may have information on the material acquired directly but not on purchasesmade centrally. 32A Social Organization in Health (OSS) is a new organizational form developed for delivery o f certain public services through a variant o f a contacting-out modality. Under this OSS model, the government provides budgetary transfers to cover the costs o f running the hospital, but responsibility for day-to-day administration is delegated to pre-certified, non-profit organizations. The State Secretariat o f Health (SES) negotiates and signs a performance contract with each o f these hospital managers, granting them greater flexibility than their counterparts in traditional state hospitals to run the hospital in the manner they consider best-suited to meet their performance targets. In2004, 16 public hospitals in Si40 Paulo were administered as oss. 19 vast majority of hospitals. Most "cost" systems in these facilities record only the direct, global expenditures on materials andpersonnel. BUDGETEXECUTION High variance in budget execution by the Secretariats: The data collectedthrough the survey show variations in execution ratios measured at different points of the budget execution process. On average, the states inour sample over-executed their current expenditures by 3% between the initial and final allocations. The variation was much larger for the capital expenditures mainly because of the in-year approvals of additional expenditures (expressed as "Final" inFigure2.5). Some states recorded substantial unbudgetedexpenditures for paying doctors and staff contracted to provide basic care through the Family Health Program (PSF) and the Community Health Agents Program (PACS). However, on average, the level of budget execution in the aggregate was reasonable: 91% of funding spent and paid during the fiscal year, despite evidence o f large variations across cost items. However, it is worth noting that due to delays in tendering processes and budget execution, spendingthe entire allocation for the fiscal year inthat same year is difficult. Budget execution by the sampled municipalities shows much greater volatility than the states (Figure 2.6). There i s an increaseo f almost 15% between the initial and final allocations for current expenditures. But the final execution (payment) was noticeably less than the allocation in most of the municipalities (except for SZo Gonqalo and Cuiabh). The most frequent reasons for this difference are delays in the release o f funds by financing agencies (often the Finance Secretariat), and the fact that the amount for the last two months i s released too late to realize tenders. Some municipalities also reported having difficulty committing all of the available funds due to insufficient administrative capacity, which results indelays inprocurement and payment. Inmany municipalities (including some large ones, such as Manaus), procurement and budget execution is mostly centralized outside the Health Secretariat. The latter manages little if any budgeted funds; all obligations and liquidations are handled by the city's Finance Secretariat. Since the purchasing agent (i.e., Finance Secretariat) i s unfamiliar with the needs of the service provider, centralization of procurement increases the risk of shortfalls or delays in material purchases contributing to emergency purchasesthat usually cost much more. The survey also uncovered large variations among cost items, with large increases between the Initial and Final allocations for staff (19%) and Transfers to Private Philanthropic Institutions, -- payments to private non-profit service providers under contract with SUS (more than 2000%). In contrast, the allocations for inputs necessary for direct delivery of medical care (e.g., medical and hospital materials, medicines) were reduced by as much as 14%.33 Overall, the items directly related to attending patients show the lowest levels of expenditure execution: medicines (78-7% liquidated), medical andhospital materials (84.1%) and subcontractors (90%) for service provision. The variation inthe case of capital expenditures is often quite large and even more so inthe case of the municipalities. Inthe city of SZo Paulo, for example, there was a large difference between the initial amount (R$91 million), the final allocation (R$31 million) and commitments (R$13 million), respectively. These fluctuations are due to their dependence on internationalfunding (usually 33 The items included in these categories encompass payments for hospitalizations/AJH and outpatient servicedSIA and for programs such as the PSF and PACS 20 FIGURE2.5: VARIATION INBUDGET ALLOCATION AND IMPLEMENTATIONFOR THE STATES BY COST ITEM 250 n 230 210 190 170 150 130 110 90 70 50 Note: Initial Allocation = 100 FIGURE 2.6: VARIATION INBUDGETALLOCATION AND IMPLEMENTATION FORTHE MUNICIPALITIES BY COST ITEM 2002 . _ _ % ' I Note: Initial Allocation = 100 21 managed centrally), poor planning, and the tendency to reallocate or cancel investment funding duringthe fiscal year. Taken together, these fluctuations indicate: (i)inadequacyoftheoriginalbudgettomeetplannedactivitiesasevidentinthefluctuationsinthe allocation ("Final") itself. This tends to confirm a certain degree o f arbitrariness in budget preparation - this appears more pronounced for inputs directly related to providing services; and (ii)difficulties, especially for municipalities, inrealizing expenditures, which results inunder- execution o f the budget. The observed difficulty in spending the budget i s indicative o f inefficiency in the budget execution process. The reasons mentioned in the survey vary, but they are due as much to the cumbersome requirements o f the budget execution and procurement procedures as to the managerial weaknesses o f the health secretariats, including the divorce between planning and budgetary formation processes. Specific factors include: (i) cuts or contingencies related to a shortfall in revenues. collected; (ii) delays in tendering processes; (iii)delays in issuing the authorization for payment once expenditure i s confirmed; (iv) weakness inmonitoringbudget execution inrelation to plan; (v) delays inthe release o f funds for payments by Finance Se~retariat;~~ lack o f adequate planning; (vi) and, (vii) the inability o f many secretariats to set up a timely system for budget planning and execution. Finally, the survey identified several institutional and informational limitations for effective budget execution, including lack o f qualified staff, inadequate or outdated data, and inadequate budget structure (Figure 2.7). FIGURE 2.7: PROBLEMSWITH BUDGETEXECUTION MOST OFTEN CITED (yoOFRESPONSES) Lack of qualified staff Only quantitative/financialdata Outdated information Aggregated data, not allowing monitoring of programs Informationstrictly in accounting language F'lanning centralizedin other secretariat I Note: The percentage of the state and municipal secretariats' responses: N=3 states and 15 municipalities. The total exceeds 100%due to multiple responses. Limited availability offinancial information at thefacility level: The way the health units execute their budget depends first o f all on the degree o f financial and administrative autonomy they enjoy. The availability o f relevant financial information varies considerably depending on the type o f hospital, its level o f autonomy, its size and the existence o f a mechanism that would allow it to receive private funding. Inaddition to weakening the informational base to construct robust budget 34All the states mentioned this problem, which may reach two months or more inAmazonas. 22 proposals, the lack of facility-level data on the real costs of procedures and services hampers robust analysis of hospitals' financial status. The valying importance of federal funding: The revenue patternof public and private SUS hospitals varies significantly across hospitals (Figure 2.8). Revenues from government budgets are more important for municipal hospitals but less so for the federal facilities. Federal payments through the A M and SIA transfers correspond to 35% of revenue received by federal hospitals, 38% and28% in state and municipal facilities respectively, and 58% in private, non-profit hospitals under contract with SUS. Private hospitals under contract with SUS are more dependent on federal funds than sub-national public hospitals, The latter receive revenues from sub-national budgets. Among public hospitals, forty percent of federal hospitals derive revenues from private health plans and patients, whereas none of the state or municipal hospitals does.35 Because SUS payments (AM and SIA) do not cover the costs of most services,36 the high dependence of non-profit hospitals on SUS payments leaves them in a vulnerable situation. For example, a gynecological sonogram costs R$45,but SUS reimbursement i s only R$7. Some non- profits are several months in arrears on payments to suppliers, social security contributions and taxes, Inpart to make up for this shortfall, non-profit facilities derive nearly half of their revenue from privatepatients.37 FIGURE2.8: BREAKDOlnVOFHOSPITALS' REVENUES BY SOURCE3' - 100% 90% 80% Health Plans + Out- 70% of-Pocket 60% Federal Transfers* 50% 40% Payments AIWSIA 30% 20% Govt Treasury 10% L 0% 35This is due to two factors: (i) highproportionof federal hospitals that attend to civil servants (covered the byprivate health insurance plans), and (ii) federal facilities are referral facilities which are often usedby most patients covered byprivate health plans. 36Such payments, however, may cover the full cost o f complex procedures. See De Matos, 2002: RFP no 003/99 Projeto REFORSUS e CNF'Q ApuraqSlo dos custos de Procedimentos hospitalares: Alta e media - complexidade"; Dias et al., 2004, World Bank, 2007, Forthcoming). 37 A large portion o f public hospitals receive AIH and SIA payments indirectly. These are embedded in budgetary allocations whenever these payments are made via transfers to sub-national Health Funds. Information on the breakdown of financial sources (Le,, federal vs. sub-national) cannot be determinedat the level o f the unit or the Fund. Consequently, available data overestimate the revenues from local revenues and underestimate the size o f the revenues from federal sources. 38Private includes 10 non-profit and 1 for-profit facilities, all under SUS contract. 23 COMPARINGSUB-NATIONAL HEALTH SPENDING Unequal distribution of per capita health spending: Reflecting each jurisdiction's fiscal capacity, degree o f prioritization o f the health sector, the amount transferred by the MOH, and population size, per capita expenditure on health varies considerably across the states and the municipalities in our sample (Figure 2.9). The observed variations are much greater among municipalities (Figure 2.10).39 Expenditure funded through their own revenues sources varied between R$24.23 (Parintins) and R$123.63 (Porto Alegre), a 510% variation. But the per capita value o f federal transfers varies still more, from R$16.69 in S9o Paulo to R$225.55 in Sobral, a 1350% variation. These variations demonstrate a substantial level o f inequality inthe per capita health expenditure as well as the distribution o f federal transfers. On average, federal transfers represent 27% o f state expenditures and 45.2% o f municipal expenditure^.^' Because federal transfers are intended to reduce existing inequalities, one might expect that the proportion o f the transfers would be greater in small and generally poorer municipalities with limited tax collection capacity, but this is not borne out by the survey. The data indicate that several municipalities, regardless o f their size, receive more federal support since they manage to scale-up the programs subject to federal transfers. FIGURE2.9: PER CAPITA STATEHEALTH EXPENDITURES BY SOURCE - 2 5 0 2 0 0 1 5 0 100 5 0 0 FIGURE2.10: PER CAPITAMUNICIPAL HEALTH EXPENDITURESBYSOURCE - 400 350 1::: 300 @ 150 100 50 0 39In the states this varies between R$58.54 (Rio de Janeiro) and R$225.69 (Amazonas); the own resources vary between R$34.29 (RJ) and R$185.50 (AM) and federal transfers varies between R$16.46 (SP) and R$35.19 (AM). The variations at the municipal level range from R$45.04 inParintins to R$349.00 in Porto Alegre (2002 data) for the total expenditure, a 770% variation. 40Unweighted average based on 5 states and 17 municipalities. 24 Non-compliance with the Constitutional Amendment 29: Brazil's solution to addressing the society's long-standing concern that the public sector was not spending enough on health was to enact a Constitutional Amendment (in September 2000) mandating states and municipalities to spend 12% and 15% respectively o f their revenues on health. The legislation called for incremental increases over 1999 levels. Nevertheless, many states and municipalities have yet to comply with the amendment. In2003, for example, the minimum percentage the states should have spent, on average, was 10.5%, according to this amendment. But the real mean level was 8.6% (below that o f 9.9% mandated for 2002).41 Only seven states complied with or surpassed their target levels, whereas innine others the deviation was more than two percentage points. Among the states inthe sample, the average was 11.5% in 2002, led by the State o f Amazonas, which reported spending 25% o f its revenues on health. All the other states o f the sample fell short o f the Amendment- mandated target for that year. Inthe case o f the sampled municipalities, the average share o f health spending was 20.5% o f their revenues, with 12 municipalities spending more than the mandated 15% minimum and five spending less (Figure 2.11). Sslo Gongalo and Natividade were big spenders inhealth, allocating39.8 and 33.1% respectively of revenues. FIGURE2.11:PROPORTIONOFTOTALMUNICIPAL EXPENDITURESON HEALTH I NRELATIONTO CONSTITUTIONAL AMENDMENTNO. 29 45.00 40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 ALLOCATIONOFBUDGETARY RESOURCES While the approved budget i s supposed to indicate government priorities inresource allocations, the deficiencies inbudget preparation and the significant variance duringexecution, as discussed above, signifies that the true composition o f the budget becomes apparent only after the budget i s fully executed. The data on the composition o f the executed budget are reported in Figures 2.12 (for states) and 2.13 (for municipalities). Not surprisingly, a large share o f the executed expenditures i s consumed by personnel (44% on average for states and 40% for m~nicipalities).~~Expenditures on consumables and medicines are the second largest item. Nevertheless, the highproportion o f costs not allocated - and classified as "Other Recurrent Expenditures'' in budgetary ledgers- shows that many sub-national governments keep a significant share o f their sectoral budgets under general items, facilitating possible reallocations throughout the fiscal year. This i s especially true for the 4' Source:MS/SIOPS 2002 and 2003; these are means for all states. 42This percentage goes up to SO-60% ifthe cost of outsourced services is included. 25 municipalities where 44 percent o f spending is classified inthis line item.43Intwo states, SZo Paulo and Rio de Janeiro, this line item accounts for 60 percent o f spending. FIGURE2.12: DISTRIBUTIONOF STATEEXPENDITURES LINEITEM, 2002 - BY W Other recurrentexp Other services Other supplies Drugs Medicalsupplies 0% FIGURE2.13: DISTRIBUTIONOFMUNICIPAL EXPENDITURES LINEITEM, 2002 -BY Other Recurrent Personnel& Benefits 40% Other Services Medical Services 1.6% Other Supplies," 2.7% 1.4% Supplies 1.IYo Analysis o f the distribution o f the executed expenditures by activity or program, target population or other end-use criterion is difficult because budget documents do not break down expenditures in sufficient detail to do so. Only in the case o f state secretariats was it possible to assess the expenditures in the main sub-functions (Figure 2.14). This data reflects the predominance o f "Hospital and Outpatient Care" and o f "Other Sub-Functions" (nearly 43% each).44 Both are apparently catch all categories whose content can vary across states. 43Alsb, some o f the differences notedbetweenthe states can be attributed to the lack o f standardization in classifying items by line item. 44 Primary care receives much lower spending shares (between 2% and 9%) in part because states are not responsible for the organization and provisiono fprimary care. This is a municipal function. 26 The data reveal the inadequacy o f the current classification. For example, two broad categories - one ambiguously denominated "other" and the other i s a catch all for outpatient and hospital services - are responsible for nearly all expenditures. Moreover, the separation o f the activities and programs between the sub-functions o f the budget classification i s imprecise. For example, the expenditure for personnel involved in basic care by municipalities i s not usually recorded in the sub-function denominated as "basic care." Rather, this spending i s registered in broader categories that capture all personnel spending. Inshort, the broad level o f aggregation o f expenditures by sub- function together with the lack o f standardization in program classification makes rigorous tracking expenditure impossible for basic care, programs, and many facilities, and therefore does not permit evaluation o f the effectiveness o f resource allocation. FIGURE2.14: DISTRIBUTIONOFTHESTATES' EXPENDITURES HEALTH SUEFUNCTION ON -BY 100% Other Subfunctions 80% Foodand Nutrition 60O/O IEpidemiological 40% Surveillance SanitarySurveillance 20% 0 Prophylacticand 0% Therapeutic Support IOutpatientandHospital Care Basic Care I I Composition of executed budget at thefacility level: Expenditure composition varies considerably among hospitals o f different types and characteristics (Figure 2.15). Expenditure on personnel i s always predominant, representing about 50% o f overall expenditures, but rising to 60% if outsourced services are included. The proportion o f expenditure for in-house personnel i s greater among municipal (61%) and federal (59%) hospitals, and less in the state facilities, where the degree o f outsourcing i s higher. This may reflect the generally tighter fiscal conditions o f the states.45 Expenditure for supplies and medicines consists o f the second largest item, accounting for about 20% o f total spending. Its proportion in relation to overall expenditure varies between 17% in federal and municipal hospitals, and 24% in philanthropic hospitals. This value does not usually include medicines and other supplies provided to the hospital free o f charge by the Ministry o f Health or other levels o f government.46Depending on the year, these allocations can be substantial. 45 States may face legal limits o n personnel expenditures (as a share o f net current revenues) as specified in the Law o f Fiscal Responsibility (LFR, 2000). The LFR seeks to establish new, more transparent and responsible patterns inpublic management and especially fiscal management. Among other things, the law forbids public institutions from overspending their revenue over three years, and limits federal, state and municipal governments' personnel expenditure to a maximumo f 50% (for year 1) and 60% (for years 2 and 3) o f net recurrent revenue. 46 Inmost cases these are not registered as expenditures. 27 MONITORING CONTROL AND Weak monitoring and control by the secretariats: States and municipalities use different, though comparable, information systems for monitoring the budget. The purpose of these systems i s ' basically the same: ensure compliance with current legislation and track budget execution through its various phases. Some states and municipalities innovate, creating new instruments or modifying the standardized systems. The city of S5o Paulo, for example, has developed aHealth in Numbers- instrument that makes the Health Secretariat's results public. FIGURE2.15: MAKE-UP THEEXPENDITURESHOSPITALS SAMPLE OF OF INTHE BY COSTITEM, 2002, IN yo 0 Other Recurrent Exp 1 0 Other Supplies 1 Medical/Hospital Supplies I Drugs I Services Other I Medical Services 1 0 Outsourcing Personnel& Benefits Ingeneral, the effectiveness of monitoring and control ofbudget execution is limited, often due to poor capacities of health secretariats (e.g., lack of qualified manpower as mentioned by half of the municipalities inthe sample). As suggested above, the formats of data presentation are inadequate (e.g., highlyaggregated and barely quantified with no assessment activities or services produced or o f factors affecting their production). Monitoring, if done at all, i s often not performed in a timely fashion. In general, the secretariats display limited focus on financial and accounting control and littleuse of the available data for administrative purposes or internal evaluation. Required budget reporting involves multiple overseers, which can lead to redundancy and high administrative burden4' The use of reporting as an instrument for internal management review i s not a common practice among the states or muni~ipalities.~~ SUS legislation identifies the Management Report (Relatdrio de GestGo) as one o f the main documents for accountability. However, these reports usually do not itemize the priority programs and actions, and show only quantitative results on service volume. The only exception at the state level was the State of Rio Grande do Sul, where achievements regarding performance and impact indicators (e.g., infant 47 In the case o f the states, reports are issued for the SIAFI; Balance Sheets for Accounts and Payment Processes are issued monthly for the Finance or Treasury Secretariat andor State Court o f Accounts (TCE) and for the Legislative Assembly, and Administrative Reports and others for the Health Council and the Ministry o f Health. The General Balance o f the Municipal Health Fund is presented annually to the Federal Court o f Accounts (TCU). 48 Only Rio Grande do Sul and Mato Grosso reported possessing a review process to assess managerial practices and results. 28 mortality or other health status indicators) are mentioned. However, these indicators are not associatedwith the objectives andtargets definedinthe Health PladAgenda Duringthe 1990's SUS requiredstates and municipalities to create auditing, control and evaluation departments. The statedobjective of these units is to ensure the effectiveness of the health activities and services. All of the states inthe sample have an agency responsible for these functions. Among the sampled municipalities, five have yet to establish such units: Parintins, Resende, Barra do Bugres, Pelotas and Ivoti. Ifoperational, these departments almost always limit themselves to reviewing and auditingmedical bills ( A M ' s ) andor financial accounts, and rarely, if ever, assess results in terms of impact or effectiveness of the interventions. Moreover, they face their own operating problems such as insufficient number of or poorly qualified auditors, the inexistence of quality control at the facility level, and inadequate financial resources. A 1999 report by the Department of Control, Evaluation and Audit of the Ministry of Health also outlined problems with geographic access in some states, fragmentation of the data systems, non-prioritization of these activities by the various divisions of the State Health Secretariats, and the lack of appropriate monitoring instruments. Ingeneral, the units' responsibilities are usually defined ina broad, all-encompassing fashion. For example, inthe case of Amazonas the functions include control, evaluation, supervision and auditing. Expenditure control at thefacility level: Generally, the level of control that the health units have over their expenditure i s very limited, and based largely on the formal documents and reports required by the budgetary system. In most cases, little use is made of this information internally and often the unit's director i s not familiar with, and does not use, available financial reports. In some health units, especially the small ones, the unit's director is often totally oblivious to expenditure on personnel which i s managed centrally (by the administrative or financial secretariats). As mentioned above, whenever the hospital is not an official Budgetary Unit and therefore has no budget of its own, little data is kept on its expenditure since nearly all spending i s executed centrally. The level of financial information available for health units varies depending on the level of government. Because they are Budgetary Units, all federal hospitals in the sample have budgetary data. Among the state hospitals, 46% have their own budget, but 23% report having no financial information. The remaining state-managed facilities possess only partial information on costs. At the municipal level, 62% o f the hospitals have practically no information on revenues or expenditures. This is because inmany municipalities nearly all spending i s centrally managed. All the private hospitals of the sample, as one might expect, have total, or at least partial, financial information. Inthe caseofstateandmunicipaloutpatient units,85% do nothaveabudget and55% do notkeep financial data in a systematic way. Most of these units do not prepare budgetary and financing reports. Interesting exceptions are the cases of the municipality o f Cuiabh, which set up a cost system ineach healthunit inits network (Box 2.2) and the OSS hospitals inthe State of Siio Paulo, which set up a similar cost accounting system.49 49The OSS hospitalsare public facilities managedby private, non-profitorganizations. An evaluationof the model is available inWorld Bank,2007 (forthcoming). 29 BOX 2.2: A SYSTEM FOR VERIFYING COSTSAT THE MUNICIPAL LEVEL: CUIABbr EXECUTION FEDERAL OF TRANSFERS Unpredictableflow of federal transfers: Federal transfers to sampled states and municipalities also exhibit fluctuations inbudgetedamounts, displaying significant differences at the level o f allocation ("updated" versus "budgeted") and inthe amount effectively received. Table 2.1 shows that in the case of the State Secretariats, the "updated" revenues for 2002 (equivalent to the final allocation) represent only 66% of what was originally budgeted, and the "actual" or received amount was 50% more than the "updated" amount, almost equal to what was initially budgeted. This wide dispersion in allocations suggests that it may be very difficult for states to plan, allocate and monitor funds received from the federal government. 30 Average Variation in YO * Updated / Budgeted Actual / Budgeted Revenues Revenues Average for the States* 66.42 98.42 I Amazonas 100 100 I Mato Grosso II 13.90 II 67.90 II I Rio de Janeiro I 59.80 I 61.31 I Sgo Paulo 91.97 164.49 Data on transfers to municipalities are more readily available and allow a better analysis o f the performance in implementing the federal transfers. The transfers to the Municipal Health Funds represent an important source o f funding available to the municipalities, especially for those less favored by the criteria for automatic revenue-sharing between tiers o f government. Only in the municipalities o f Resende, Sgo Paulo, and Cuiabi do own revenues represent more than half o f the resources managed by the Municipal Fund." As depicted inTable 2.2, almost all the federal programs financed through transfers showed a drop in their "updated" revenues in relation to the "budgeted" revenues, which in most cases was less than 15%.51 The "actual" revenue (funds actually received during the year), in turn, varied more depending on the program: between 108.3% o f what was budgeted (inthe case o f AIHs intended for the local p ~ p u l a t i o nand~46.4% (for the Program for Combating Nutritional Deficiencies). ~ The level o f execution o f the funds transferred also varied considerably across municipalities and programs (Figure 2.16). Even though the mean level o f fund execution varied within an acceptable 80-100% range, the observed dispersion across municipalities was wide, with a standard deviation o f 2540%. Over-spending means that the municipality spent some o f its own funds on the program, while under-spending means that either the original amount was cut short, or that the municipality was not able to execute available federal funds. For some programs "actual" transfers receivedwere greater than what was budgeted. In general, under-spending was explained by budget cuts and freezes (Rio Grande do Sul), delays in federal transfers (Rio Grande do Sul, Mato Grosso and Ceari), and difficulties inrevising the time-line o fthe Work Plan (Rio Grande do Sul). so As illustrated in Figure 1.2, a Municipal Health Fund i s a fund established by law where all financial resources spent inthe municipality on health should be consolidated and managed, irrespective o f their source (own revenues and transfers from federal or state governments). "Stateandmunicipalexpendituresonfederalprogramsarefinancednotonlybyfederaltransfersbutalsoby state transfers (for some municipalities) and by own revenues from the state or municipal revenues. 52 The AIHquota allocated to aparticular municipality (or state) includes two components: one calculated from the local population (Le. the populationresiding inthat municipality) and the other based on patients living inother municipalities (whether formally referred or seeking care by their own initiative). 31 Average Variationin YO * UpdatedI ActualI Budgeted Budgeted Total SUS Fund-to-FundTransfers 98.55 92.99 I 80.98 I 84.06 II MinimumLevelofFixedBasic Services(fixed PAB) MinimumLevel ofVariable Basic Services(Variable PAB) 92.05 92.39 Family HealthProgram(PSF) III 76.05 II 80.28 III PACS -Community HealthAgents 100.77 106.20 Epidemiology and Disease Control 95.49 92.36 Basic Pharmacies 78.19 81.86 II Health Nutritional Deficiencies 66.05 46.40 Inspections 98.92 97.33 II LocalPopulation SIA 96.82 90.60 89.25 108.28 II Source: LocalPopulation SM SWSMofmunicipalitiesnot eligibleundertheNOAS IIIII 85.74 IIIII 89.86 IIIII 2002 SIPOS o f the municipalities, basedon only the regular and automatic transfers. I FIGURE2.16: VARIATIONSINTHE IMPLEMENTATIONOF MUNICIPAL REVENUES FROMTRANSFERS PROGRAM,2002 -BY 60.00 0 SUS Fund-to-Fund Transfer ~d Fixed PAB 40.00 9 Variable PAB 20.00 iPSF(FamtyHealth) 0 PACS (Corm*lnity Agents) 00.00 s Epldemiol/Dsease Control 80.00 Basic mugs Nutritional Deficiencies (PCCN) 60.00 0 Sanitary Surveillance (Heaith - inspections) Sl.4 (Outpatient) own population - 40.00 r SIH (Inpatient) own population - 20.00 Sl.4lSIHpatients from other nunlcipalitles A Total Revenue Direct Admnistration 0.00 Jote: Average and Standard Deviation o f the % o f implementation o f the transfer revenues. 32 Weak monitoring of federal transfers andprogram spending: The wide dispersion observed infund execution reflect a broad range o f problems : (i) diversity inthe status of states and municipalities in terms of SUS qualification ("full system management" vs. "basic care management"); (ii) inadequacy of the planning and budgetingprocess, leadingto substantial variations during the fiscal year; (iii)states' and especially municipalities' low capacity for executing available resources; (iv) frequent delays and changes in Ministry of Health transfers; and (v) weak communication between the MOH and the local Health Secretariat. Regarding this last point, funds are often received by another secretariat or by the mayor's office andthis is not communicatedto the health secretariat. In addition, some municipalities complained about not being informed of cuts or contingencies on the part of the Ministry of Health, even though these cuts would force a revision of plans and sometimes a modification of the objectives of MOH-municipal agreements underlying the funds transfers. An additional factor relates to the availability and quality of the data. Data on particular program transfers was missing for several states and municipalities sampled on a given fiscal year. These difficulties are in part due to inadequate budget itemization by program. Any attempt to track federal transfers by specific programs and estimate the total expenditure on these programs i s hinderedby the fact that the budget structures of states and municipalities do not usually include the federal programs and interventions covered by these transfer^.^^ Moreover, inconsistency i s evident among data obtained from different information sources (budget, SIOPS, reports, etc.). Part of this inconsistency i s due to the recording of financial flows either on an accrual basis (in accordance with the period of reference or o f acquisition), on a cash basis (based on payment), or without specification of the accounting method used. Also observed was a lack of consistency and clarity regarding the accounting definition of the data reported for revenues or expenditure ("budgeted" versus "updated" versus "actual" versus "obligated" versus "liquidated" versus "paid out"). In short, these difficulties make it virtually impossible to know with precision the consolidated expenditure on a givenprogram. A more detailed analysis of execution of four national programs in five municipalities (for which more data was available) confirmed the above findings.54In the case of the PSF and PACS programs, municipal spending i s recorded inthe budget, allowing for estimation of total expenditure on the programs consolidated across municipals and federal levels. That is not the case for other programs, which do not receive specific appropriations; the available information thus refers to execution of federal transfers only. In the municipalities that have information on their expenditures for the PSF, Figure 2.17 demonstrates that the actual amount spent on this program i s most often much greater than the amount received from the federal government: from 150% in Rondon6polis to 810% in Cuiaba. This is inline with federal policy inwhich federal transfers are meant to only partially finance the program while providing an incentive to municipalities to contribute with their own revenue sources. Inthe case o f the PACS, only CuiabS and Fortaleza show expenditures greater than the "actual" revenue, and even then the proportion i s quite small. This indicates that many municipalities tend to view the PSF program as a good investment and a central strategy for structuring their basic care network. But as shown in Figure 2.16 above, execution rates display important variations across programs and municipalities. 53Exceptionsinclude the Family Health Program (PSF) and the Community Health Agents Program (PACS), and isolated cases of some other specific programs. 54This analysis focused onfour programs (Family Health/PSF, Community AgentsPACS, Combating Nutritional DeficienciesPCCN and Primary CarePAB) infive municipalities (Barra do Bugres, Cuiaba, Manaus, Fortaleza and Rondon6polis), chosen basedon the greater detail o f their data. 33 Finally, Figure2.18 shows that expenditure per capita for these programs vary significantly." Inthe case of the PSF spending ranged from R$3 in Manaus to R$50inCuiabb, and varied even more in the case o f the PCCN (from R$0.30in Cuiab6 to R$270inBarra do Bugres). The variation inper capita expenditure i s due to several factors: the scope of services provided, program population coverage, efficiency in its implementation, and discrepancies in the data or in the unit of mea~urement.'~Again, missingdata and the lack of uniformity in the definition and measurement of variables complicates attempts to evaluate and compare the performance of programs financed with federal resources. FIGURE 2.17: RATIO OFTOTALEXPENDITURE /TRANSFER REVENUE, SELECTEDPROGRAMSANQ MUNICIPALITIES 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 , 1.00 I PSF PACS PABfixo PCCN FIGURE2.18: MUNICIPAL EXPENDITURESPERCAPITA, SELECTEDFEDERALPROGRAMSAND MUNICIPALITIES I 200 175 150 125 Barra do Bugres Rondon6polis 100 Manaus CulbA 75 Fortaleza 50 25 0 PSF PACS PCCN PABfixo 55 In many cases, the registered population is based on a standardized metric of coverage per team rather than the number of people actually enrolled by the teams. The latter may be larger or smaller than the standard metric. 56 For example, some municipalities report spending per population enrolled in the program, while others consider the population served through regular visits and program activities. 34 SUMMARYASSESSMENT Similar to other Brazilian sectors and institutions, the planning and budgeting process in SUS is structured and formalized, and i s based on plentiful legislation and detailed regulations. However, its complexity and burdensome papenvork limit the usefulness o f these functions as effective management tools. Box 2.2 below outlines some o f the issues inherent to SUS and the broader public administrationapparatus that detract from more effective planningand budgeting. All state and municipal health secretariats prepare an annual health plan; however, these are more for the sake o f meeting legal requirements than for planningper se. The usefulness o f these plans is therefore limited. There i s considerable disconnect between the priorities established by SUS and those o f the state and municipal health secretariats. The most frequently cited reasons for the deficiencies in health planning are: lack o f local instruments for problem identification, little time for plan preparation, direct adoption o f the Health Ministry's programs and priorities even though these may not be the most critical priorities o f the states and municipalities themselves, and fragmented and uncoordinated programs and activities. As a result o f weak planning at the secretariat level, planning i s also weak at the facility level. The precarious nature o f health planning, both at the secretariat and facility level, complicate effective budget preparation. Since the content o f sector plans is translated into an action framework with specific amounts dedicated to each budget category, the weakness in planning implies that annual budgets are not well-linked to priority areas. In addition, previous years' budgets often serve as the guide for the formulation o f current year budgets, allowing for a continuation o f inefficient resource allocation to low priority areas simply because o f inertia. Even when plans define specific programs as priorities, these often have no resources dedicated to them in the budget, due to the fact that budget allocation is often at an aggregate level. The main difficulties in budget preparation as identified by the states and municipalities are: lack o f or outdated information on costs, lack o f qualified staff to prepare budgets, and insufficiency o f baseline financial data to guide the detailed budget preparation process. 35 Without proper budget preparation, budget execution i s also inefficient and o f low quality. There i s highvariance inbudget execution among the state secretariats. Although almost all funding (over 90%) i s spent and paid out during the fiscal year, there are large variations across items. This problem i s more severe among municipalities, with some even reporting difficulty in committing available funds due to lack o f sufficient administrative capacity. Variation incapital expenditures i s greater due inpart to dependence on external funding, which i s centrally administered, and suffers from poor long-term planning. The outcome i s very unequal distribution o f per capita health spending and quality o f service across jurisdictions, regardless o f the attempt o f federal transfers to equalize the availability o f health funding. Even when funding i s adequate, the lack o f monitoring and control mechanisms leads to waste, loss o f purchased medical equipment and medicines, and ultimately, even lower and more unequal quality o f health service. More specifically, the survey revealed the following shortcomings in planning, budgeting and budget execution processes: The planningprocess i s truncated, displaying little consistency and articulation between the various documents, between the stages o f planning, or between the different actors located inpublic administration apparatus. The planningexercise and corresponding products are usually shelved once they have served their legal purpose (i.e., submitted by the deadline). Strategic and financial data neededto develop plans and budgets are often centralized inthe Finance or Planning Secretariat and not often made available to the Health Secretariat and hence to the unit managers. In short, plans and budget proposals are not well-linked with each other. The plans present objectives and targets, but rarely define articulated strategies and actions to meet them. In many cases, the plans constitute declarations o f intents rather than guidelines or roadmaps on how to achieve desired policy objectives. The lack o f cost parameters for services on which to base the resource forecasts for programs implementation i s essentially based on previous year's spending. This practice calls to question the validity o f the budgetary process. Significant changes between the initial budgetary allocation and the funds finally made available limit the usefulness o f planning and financial forecasting. Budget execution does not correlate with the planbecause o f the reduction between initial and final allocations due to cuts and withholding o f fund release (contingenciamento).The frequent delays inrelease o f financial resources make it difficult to optimize the use o f the available funding (when the latter i s known). Some o f the ``frozen" funds can be released only at the end o f the year, leaving little time for their effective application. In practice, the release of budgetary resources during the current fiscal year starts in March and ends in November. The unpredictability and delay infunding release is also applicable to federal transfers. Municipalities report having little capacity for executing expenditure due to a lack o f qualified personnel. Health unit managers have limited authority for and knowledge o f spending intheir units. At the level o f the secretariats, the system for budget monitoring focuses first and foremost on compliance with legal requirements, standards and financial control. There i s little concern for assessing the results obtained. At the facility level, monitoring i s nearly non- existent. 36 0 Because o f the multiple payment mechanisms in SUS, a multitude o f parallel reporting and account rendering exists, some o f which associated with programs having limited funding. This consumes considerable resources and time, and therefore increases administrative costs. 0 Availability o f sufficiently disaggregated data on budget execution i s limited, which makes it difficult to track actual use o f budgeted resources, including federal transfers, and evaluate their efficiency and effectiveness. Any attempt to improve the efficiency of health spending and increasethe quality o f health services must beginwith improvedplanning and by linkingplans, budget preparation, andbudget execution. Deficiencies in these areas trickle through the entire health system and jeopardize service quality, leading to Brazil having relatively high per capita health spending for an upper-middle income country, but low health quality. With improved planning and budgeting, Brazil can leverage its current amount o f healthresources to achieve far better health outcomes. 37 3. MANAGEMENTOF MATERIAL INPUTS Materials management, the management o f supplies and medicines, equipment and installations involves getting materials from their source (manufacturer) to the user (facility, ward, operating theater) and their ultimate disposition (by a patient, program or service). Materials management aims to: "provide the right items, in the right quantity, to the right place, at the right time, for the right (lowest) price."" Material management involves procurement, inventory, distribution storage, budgeting, control and processing. Materials management serves a dual purpose. First, it promises more efficient use o f budgeted resources. Second, it provides feedback to budget preparation and planning, and can help guide policy decisions as to more efficient purchasing and distribution o f supplies and medicines, better maintenance, use, and purchase o f equipments and installations, and more effective use o f human resources. Coupled with stronger planning and budgeting, better materials management can contribute to improving the quality and efficiency o f health services, and in a virtuous cycle, better materials management can itself provide the tools for stronger planningand budgeting. Quality o f care depends critically on availability o f adequate material inputs that include medicines and other medical supplies and equipment. Supply and quality o f these inputs inturnis determined by the adequacy o f forward resource planning, the efficiency o f the public procurement process, and the capacity at the facility level to manage these inputs, including maintenance o f equipment. A guiding principle o f public procurement is economy: the acquisition o f goods (and services) o f defined specifications on a timely basis and at the lowest cost. A private firm that operates on the basis of profit maximization has a built-inincentive to ensure "economy" o f its procurement. But such an incentive tends to be weaker in public sector agencies. Since public procurement creates opportunities for corruption, governments develop an elaborate set o f rules and regulations inorder to minimize corruption that can result inundesirable outcomes such as higher bid prices and lower- quality o f goods and services for a given price paid. Inmany cases, however, these elaborate rules tend to delay an average length o f procurement process, sometimes discouraging potential suppliers from participating in a bidding process. Similar to human resource management discussed in the next chapter, the legitimate desire to limit waste and abuse o f public resources through procurement often leads to rigid and cumbersome processes that severely compromise efficiency and timeliness o f service delivery. The complexity o f a typical procurement process raises the importance o f forward planning. Yet, this is typically an area of weakness among governments in developing countries that lack timely information on inventory conditions or facilities' needs for new materials and equipment. Strengthening this capacity, as part o f overall planning capacity development, would thus contribute to making procurement o f goods and services more efficient as well. This chapter analyzes the main areas o f material input management: supplies and medicines, equipment and installation^.^^ Each section presents the main issues uncovered in each area o f material management in the survey. The final section provides overarching conclusions regarding the entire input management framework, and by extension, the effioiency o f the health care system. 57Kowalslu-Dickow Associates and the Association o f Healthcare Resource & Materials Management, Managing Hospital Materials Management. Kowalski-Dickow Associates 1997,p.5. 58Personnel management is the subject o f Chapter 4. 38 SUPPLIESAND MEDICINES Inthe health sector, management of supplies - from their acquisition to their use - consumes a substantial portion of financial resources (around 20% of the total). It is therefore critical to ensure effective control of this process to avoid unnecessary cost and maintain adequate quality of care. This section reviews the process of purchasing and tendering, inventory management and control, and the use of cash advancesused for small purchases. Purchasingand Tendering Health Secretariats Ingeneral, the responsibility for authorizingthe purchaseof supplies andmedicines belongs to state and municipal health secretariats, along with the contracting o f services and, to a lesser degree, the purchase of equipment. Inthe case of equipment, the authorizing responsibility i s often situated in another agency such as the Finance or Administrative secretariats. As for general procurement, in only one case among the sampled municipalities is the purchasing authority provided by another secretariat (inBarra do Bugres, by the Finance Secretariat). Nevertheless, the actual purchasing may be the responsibility of the Health Secretariat (Sgo Paulo, Parintins, Port0 Alegre, Manaus, Cuiaba and Ivoti) or another secretariat such the Administrative Secretariat (Barra de Bugres, Sobral, Rondon6polisand Assis). Procurement legislation stipulates various methods for the acquisition of supplies and the contractingof services. The total cost determines the specific procedures and deadlines: Public tender: this is the most complete and rigorous method o f tendering, requiringprior qualification o f the competitors and longer deadlines. This method i s mandatory for purchasesand contracts for amounts greater than R$650,000 (US$302,300) Price surveys: this i s an intermediate method, reserved for amounts between R$80,000 and R$650,000. Letter o f invitatiodcall for bids: this i s a simplified form of tendering, in which at least three suppliers are invited to present bids; it i s used for purchases between R$8,000 and R$80,000. Direct purchase: this i s the simplest method, reserved for small purchases and services (valued at less than R$S,OOO). Reverse auction (pregh), used mainly for large-scale purchases of relatively standardized goods. Tendering methods: Table 3.1 presents the breakdown of the various procurement methods used by the municipal secretariats in our sample. The data, based on the 699 procurement processes reported by the sampled municipalities, indicate that the secretariats perform a large number o f tendering. small purchases but spend the largest share o f available funding on the most rigorous method, 39 TABLE3.1: DISTRIBUTION HEALTH OF SECRETARIAT PURCHASES BY TENDERING METHOD METHOD AVG.NUMBERPER TOTAL I SECRETARIAT VALUE(R$) Direct Purchase I 576 I 5,152,400 I 2,233 I 17,966,334 38,554 14,892,784 141,836 Tendering 57,884,269 226,3 18 Delays in the tenderingprocess: The time needed for the purchasing processes varies considerably depending on the method (the most rigorous ones have longer legal deadlines and require more time in preparation and execution), on administrative capacity, and on quality of planning by the secretariats themselves, along with other factors. On average, these processes usually take between 1.5 and 5.5 months, according to the survey results. InMato Grosso, for example, it takes 4 months for acquiring office and cleaning supplies; in Ceara, 1 to 2 months for purchasing hospital equipment; and 2 months (Cuiabh and Ivoti) to 5 months (Resende) for hospital supplies in municipalities. The long duration o f the procurement processes delays budget execution. As reportedby the secretariats, the delays inthe tendering process also tend to create tardiness in the signing o f contracts and inthe provision o f services. Such delays are most common for medical and hospital supplies (1 state and 3 municipalities) and for general supplies (1 state and 2 municipalities), and medicines and maintenance services (1 municipality each). Among the municipalities, the incidence o f delays in acquiring supplies was 47%, being most frequent for medical and hospital supplies (Table 3.2). These delays in turn result in partial or temporary shortages, difficulties in dispensing medicines to patients, poor quality/effectiveness o f the services offered, suspension o f these services, or emergency purchases. The deadlines and requirements o f the more complete tendering methods, and the frequency o f these delays provoke the units to adopt strategies to circumvent these difficulties, for example, by dividingone purchase into several o f lesser value (which is illegal but a common occurrence), or by seeking a waiver when faced with an emergency situation (which allows the use o f direct purchasingmethods). Inthe survey, the most common reasons for waiving tendering were: delay in the tendering, an emergency situation, a cancellation o f a previous tender due to lack o f bidders, an irregularity, or compliance with a court order. The latter usually i s the result o f a legal challenge from "losing" bidders, and can hold up completing the tendering process for months, ifnot years. TYPE YO General Supplies 17.7 Medical Supplies 23.5 Medicines 5.8 No report o f delays 53.0 40 The standardization o f supplies and medicines5' i s adopted by two states (Mato Grosso and Ceara and eight municipal secretariats. Standardization seems to be more common among larger municipalities. All o f the secretariats that report usingstandardization also claim that control o f the receipt o f the goods and services i s performed according to the standard list. Many states and municipalities adopt, either entirely or as a reference, the Ministry o f Health's list o f essential medicines. Health Units Autonomy for purchasing: Most hospitals (75%) directly purchase supplies and contract services: for the remaining 25%, a central secretariat (not necessarily the health secretariat) makes these purchases. This i s mainly the case for federal, state and private hospitals, but not so for municipal hospitals where purchases are performed elsewhere in the municipal bureaucracy. In the case o f equipment, direct purchasing i s considerably reduced; only 39% o f the hospitals inthe sample have the authority to acquire equipment. Table 3.3 shows that this responsibility varies greatly depending on hospital ownership: all federal and private hospitals directly purchase supplies and services compared to 85% and 24% o f state and municipal facilities, respectively. This demonstrates the highdegree o f administrative and financial centralization that i s prevalent inmost o f the municipalities. Most facilities tend to make frequent purchases o f limited size or amount to simplify procurement processes. Among the hospitals that make purchases during the fiscal year, the methods most used were direct purchase (53%), price survey (24%) and letter o f invitatiodcall for bids (18%). These figures suggest a large number o f small purchases. In terms o f value, the letter o f invitation and price survey each represent 38% o f the total while direct purchase represents 13%. Eighty-two percent o f the hospitals work with standardization o f supplies and medicine, which facilitates quality and cost control since it permits reducing the number o f items in stock and makes the purchasing process more competitive due to greater economies o f scale. WHO AUTHORISES FEDERAL STATE MUNICIPAL NON-PROFIT FOR-PROFIT External EntityBector 0.0 30.8 76.5 0.0 0.0 General Director 50.0 76.9 35.3 61.5 50.0 Administrative Director 0.0 38.5 11.8 38.5 0.0 Purchasing Dept. 0.0 0.0 11.8 15.4 50.0 End-User SectorLJnit 0.0 0.0 0.0 0.0 0.0 Other 0.0 15.4 5.9 15.4 0.0 N o Response 50.0 0.0 0.0 0.0 0.0 59Standardization implies the definition o f a list o f frequently purchased supplies and drugs, including volume andpackaging. This reduces the number of items andtypes ofpackaging, andtherefore simplifies stock management. 41 I Delays in the purchasing process: The effects o f the sluggishness o f the purchasing process and the subsequent delays are most evident at the level o f the health units than the health secretariats since the units are directly responsible for providing services. Among the hospitals in the sample, the frequency o f delay inthe purchasing or delivery o f supplies was 71%: 61% for medicines, 57% for medical and hospital supplies, 32% for other supplies and 27% in maintenance services. These problems are most frequent among municipal and state hospitals when compared to private for- profit hospitals in the sample.60 In particular, 82% o f the municipal hospitals report delays in supplying medicines throughout the year while 65% report delays in purchasing medical and hospital supplies. Among those hospitals where it was possible to identify the reason for the delays, for most (54%) the main reason was related to the tendering process itself (pre-fixed times, tardiness, red-tape, difficulty in meeting requirements); in 23% o f the reported cases delays were related to inadequate management (with inadequate forecast o f needs and a lack o f inventory control); and in another 23% the problem was payment delays or failure to pay the suppliers. n FIGURE3.1: FREQUENCY OFDELAYS INTHE PROVISIONOF SUPPLIESAND SERVICES INHOSPITALS ( y o OF HOSPITALSSURVEYED) 0 25 50 75 100 General Supplies MedicalMospitaI Supplies Federal State Drugs 0 Municipal 0 Non-Profii Maintenance services For-Profit Other services Consequences of the delays: Not surprisingly, delays inpurchases bringundesirable consequences for service delivery. Of those hospitals reporting delays inthe purchasing and delivery o f supplies or services, 89% had resorted to emergency purchases in small volumes and but at higher prices. Interestingly, 48% also reported seeking missing items from other units (which have to be returned inkind once the stocks were received). The main consequence o f these delays were stock outs o f supplies (in 88% o f the cases), which, in turn, resulted in postponement or suspension o f services (e.g., cancellation o f surgeries in 20% o f the cases), or a decrease inthe quality o f service. The latter was reported by 23% o f the hospitals. Also mentioned were administrative complications arising from emergency situations. Since emergency purchases are usually made insmall quantities inretail establishments, prices are noticeably higher than for programmed purchases. Although the differences vary, prices can be 20% higher for general consumables and 30% to 40% for medicines. Quality andperformance control in contract management: The trend to outsource diagnostic and support services has increased the importance o f contract management by hospitals. The survey 6oNote that the small number o f the private facilities inthe sample does not permit reliable conclusions. 42 showed weaknesses in the management and oversight o f outsourcing contracts especially in terms o f the limited use and monitoring of performance targets. Fifty percent o f the contracts are administered based on quantitative and qualitative targets and deadlines; 14% are based on quantitative goals and deadlines. Only 5% o f the contracts include quality indicators tied to the provision o f the services while 11% o f the contracts include penalties for non-compliance with contractual clauses. It was not possible to quantify the frequency o f breaches o f contract, but there i s evidence that this i s quite common, leading to reductions inthe quality o f service (as in the case o f inadequate cleaning, for example) and higher costs. Inventory Management and Control Health Secretariats Once medicines and supplies are purchased, the next step in the process i s storage and inventory management. The warehousing o f supplies i s organized hierarchically in most states and municipalities and with varying levels o f centralization. All o f the state secretariats and most o f their municipal counterparts possess a central warehouse for storing nearly all materials, supplying the central level as well as all or part o f the network o f units. However, decentralized warehouses also exist (ens., at the regional and facility levels). At the other extreme, some municipalities possess a single, central warehouse for supplies required for all sectors (this i s true for many small municipalities). The size o f these warehouses varies considerably, from less than 100 items to several thousand. In most cases, the condition o f the physical area devoted to the warehouse i s adequate; the mainproblem reportedby respondents i s insufficient space. Most secretariats check inventories regularly (e.g., physical count) for purposes o f control and verification, although the frequency varies: annually (two states and four municipalities), semi- annually (one state and one municipality), quarterly (three municipalities) or monthly (one state and three municipalities). Inventory control is computerized in all o f the states,61but in only one-third o f the municipalities. Surprisingly, some small to medium-size municipalities have adopted a computerized system, whereas other larger municipalities have not. Generally, requisition o f supplies and medicines i s performed by the individual unit, a district, or program through completing a form. Exceptions are Sobral municipality, which uses periodic but automatic distributions, and Assis, which uses a minimumstock spreadsheet. Few secretariats find significant discrepancies between the quantity recorded in the inventory control system and what i s actually found by physical inspections, although incidence o f such discrepancies are generally believed to be quite common.62 A frequent cause o f stock leakage i s inadequate recording o f shelf labels (when recording i s done manually). The measures taken are usually strictly administrative ("revising the process"); in no case were officials reportedly held accountable investigated, or those found to be responsible punished. Few states have a routine procedure for monitoring the expiration dates o f supplies in stock. Most o f the municipalities reported maintaining some type o f control. However, substantial quantities o f outdated medicines were recently incinerated in Mato Gross and Amazonas, and in the municipalities o f Barra do Bugres, Manaus, Rondon6polis and Cuiabii, or were returned (Ivoti). This suggests that these controls are ineffective. SBo Paulo did not respond to the survey question. Discrepancies were reported only in Mato Grosso (General Supplies), Amazonas (Medical and Hospital Supplies and Medicines) and Sobral (Medical and Hospital Supplies and Medicines). It was not possible to conduct additional verification by sampling inthe secretariats' warehouses. 43 States and municipalities receive donations of medicines (and some other supplies and equipment) from the federal government (and state government in the case of the municipalities). These donations are often of substantial value. For example, in one municipality in Sgo Paulo State the total annual expenditure on medicines for 2003, 31% were acquired using municipal funds, and 63% and 6% were donated by the State Health Secretariat and the Ministry o f Health respectively. As a general rule, the corresponding cash value of these donations is only recorded in the warehouse, and is not accounted as revenue nor included as an expense (since it i s not recorded as part of the budgetary-financial flow). Consequently, municipal health expenditures, which are recorded through SIOPS63i s underestimated due to the omission of these transfer^.^^ Health Units Inadequate physical facilities for storage: The survey also identified a number of significant problems at the facility level. Most of the hospitals surveyed (83%) possess their own warehouse, which i s mainly used to store medical supplies (86%) and medicines (80%). However, among these units23% do not have adequate storage conditions (e.g., insufficient space, dust, water leakage and improper storage fixtures). The situation i s particularly worrisome at the municipal level, where 24% of the hospitals do not possess their own warehouse, and among those that do, 41% do not have proper storage conditions. Weak inventory control: Eighty-ninepercent of the hospitals that have their own storagearea carry out a physical inventory at least once a year. Inthe most recent inventory (e.g., performed prior to the survey), considerable differences were found between the quantities recorded in the inventory controls and the physical count: 20% of the hospitals reported deviations from the stock of medicines, 13% from medical supplies and 11% from general supplies. This suggests poor inventory management. The differences vary considerably in magnitude. Although most facilities reported losses of relatively low value, other reported leakage of up to 50% of the overall inventory. Similar to the case of the secretariats' warehouses reported above, the main cause of these discrepancies i s inadequate recording of the shelf labels (e.g., erroneous or outdated records). The measures taken in these situations are purely administrative (e.g., review of the process in 20% of the units and administrativeinvestigations in5%). Nopunitive measureswere reported. Among the outpatient units surveyed, 75% possess their own warehouse and the rest are supplied by central warehouses. In30% o f the cases the inventory control system i s computerized. Most (80%) of those units conduct an inventory check at least once a year. However, the controls are inadequate, and the inventories show substantial differences between stock records and physical counts: 15% in medicines and 10% inmedical supplies. Only 5% of the units report taking some type of corrective action, usually a review o f the process, and in no case was leakage investigated. The storage conditions are often inadequate and controls insufficient. In some units, the stock of medicines i s located insidethe treatment room inan unlockedcabinet. Inanother unit, whenever a new batch of medicines arrives, the doctors issue prescriptions and personally withdraw the medicines without any control over how these are used. Whether this is common practice elsewhere remain an open question. Delays in distribution occur with comparable frequency in the hospitals, causing a shortage of medical and hospital supplies for 10% of the facilities (30% o f medicines and 20% of general 63SIOPS (Information System for Public Budgets inHealth) i s a recently implemented information system aimed at monitoring and consolidating health expenditure by the different levels o f government. Itprovides more detailed informationregarding program expenditure than the main budgetary system. 64This expenditure is, however, recorded by the agency that made the donation or transfer (the Ministry of Health inmost instances). 44 supplies). Inthose units where delays occur, the main solution found was reallocation of supplies from other units (in50% ofthe cases) and emergency purchases(in 10% of the cases). Some (15%) of them hadto suspendtheir servicesuntil the problem was solved. In sum, the survey data indicate that inventory management is deficient in most secretariats and facilities due to inadequate infrastructure and controls. Dehys and shortages are common, and quality control i s rare. These problems often result in service interruption, lowering the quality of care. Management and Control of pharmaceuticals by Health Units Pharmaceutical spending represents about 10% of average hospital spending in Brazil.65How they are managed within facilities can have impqrtant impacts on spending and quality of care. Evidence and causes of wastage: The majority of hospitals have their own pharmacy for storing and distributing drugs. The practice of keeping intermediate stocks in "sub-pharmacies" in the wards and departments (45% of hospitals) represents additional problems for inventory and quality control. Inmany cases, there is very little control over these intermediate stocks. For example, only 18% of hospitals carry out periodic inventories, and 16% do not exercise any control at all over these sub-pharmacies. One major cause of waste of drugs is the gap between prescriptions and pharmaceutical purchases. Twenty-seven percent of the hospitals in the sample reported that many of the drugs kept in their pharmacies were not suitable for the treatments, or were not prescribed by the doctors. This occurs principally where there i s no standardized drug formularies (30% of the hospitals), when the existing standardization is not followed by the doctors, and/or when the hospitals are not directly responsible for the acquisition of drugs (e.g., where purchasing i s centralized in the public administrative apparatus), and where the doctors are not consulted regarding the choice of drugs to be acquired. Giventhis array of deficiencies, it is safe to say that pharmaceutical management at the facility level i s inits infancy. The mechanisms of distributing and dispensing drugs to patients also contributes to waste: only 25% of the surveyed hospitals use the "single dose" system,66and this proportion is at its lowest in municipal hospitals (6% compared to 45-50% in the state and federal hospitals). For the rest, the normal practice i s to distribute drugs in their original commercial packaging. What i s not used in the hospital i s given to the patient (even if the patient does not need to continue the treatment once discharged), or discarded after the patient leaves hospital. As this practice is very common, one can presume that the resulting waste is substantial, though information systems are not sufficiently robust to quantify such a loss. The partial and non-rigorous information obtained inthose hospitals which have adopted the "single dose'' system suggests a savings o f about 20% in expenditure on drugs between the two dispensing sy~tems.~' Finally, a significant proportion of the drugs are purchased - or deliveredto the hospital, inthe case of centralized purchase or allocation - near the end o f their expiration date. Only 2% of the 65This proportion appears low by international standards, but one should keep inmindthat hospitals receive significant quantities o f drugs directly from the MOH. Unfortunately, these in-kindallocations are not systematically recorded. 66The"single dose" systemconsists o f packaging and distributing drugs to inpatients according to each daily drug prescription incontrast to the prevalent practice o f delivering drugs to the wards inits original commercial packaging and corresponding volume. The single dose system is standard practice inhigh income countries, but is not broadly usedinBrazilian hospitals. 67This is inagreement with international studies, which point to cost reductions between 8% and 32%. 45 hospitals deemed this to be a major problem, but it i s likely that this figure underestimates the extent of the problem, given that many units do not keep records o f expiration dates. Poor conditions of storage also contribute to additional wastage in7% of the hospitals surveyed. The lack of medical drugs in the units is a serious problem, cited by a large number of hospitals (Box 3.1). However, when the prescribed drugs are given to patients for self-treatment at home (either after discharge from the hospital or as outpatients), patients often sell their medicines. At present no mechanism exists to control this distortion, nor do we have any means o f establishing the extent of this widely recognized problem. The adoption of the SUS Identification Card6' should reduce this problem, enabling a patient to be tracked through eachhealthunit. insufficiency of drugs needed to meet demand. In these cases, the patient's family is obliged to purchase medication from the nearest pharmacy. Unfortunately, it was not possible to estimate the proportion of Petty Cash Funds: Inthe secretariats and health units, frequent use i s made of advance cash or petty cash funds. These funds are used to purchase low-cost goods and services that do not require a tender and functions as a revolving fund that is replenished periodically (usually monthly). All state health secretariats make regular use o f the advance payment fund. The most common use i s for the emergency purchase of supplies and medicines, non-clinical contracted services (e.g., maintenance) and for the payment of temporary workers and transportation. Inmost ofthe secretariats, this fundis managedand controlledthrough reportingrequirements in accordance with specific laws (i.e., basedonthe presentationof receipts andjustifications). While a 68 SUS Identification Card is a newprogram under implementation inwhich every SUS user receives an ID care at a SUS facility. The card is used to record the service rendered and allows tracking patients across the system. 46 rotating fund i s one o f the few instruments that ensure administrative autonomy and agility, it also facilitates misuse o f resources. The number o f these petty cash funds as well as the amounts involved i s highly variable. For example, inthe Health Secretariats o f the States Rio Grande do Sul and Mato Grosso, 162 and 70 revolving funds exist, respectively. The funds can be linked to specific programs, departments and health facilities. At the municipal level, 7 secretariats (SBo Paulo, SBo Gonqalo, Resende, Porto Alegre, Manaus, Cuiabd and Assis) report regular use o f the petty cash revolving funds although the remained also apply this mechanism as well. The annual value o f these advance payments is low, representing between 0.1% (Manaus) and 1.8% (in Resende) o f the municipal secretariat's expenditures. The number o f these funds varies between 15 (inPorto Alegre) and 94 (inCuiabd), with no relationship to the secretariat's budget or the size o f the municipality. Use o f these funds i s very common in health units. In the smaller units it i s the most common method for purchasing inputs contracting services which are not centrally supplied. But the units have an additional incentive to use these funds: they are the preferred method to by-pass cumbersome procurement processes and to make emergency purchases. The study shows that 59% o f hospitals and 25% o f outpatient clinics make regular use o f their petty cash,funds. They are generally applied to emergency purchases: 41% for purchase o f drugs and 36% for other supplies. Inoutpatient clinics, the average annual expenditure onpurchases madethroughthese funds is R$ 4,000. Purchases made directly or through petty cash funds are o f low value and are nearly always made on the retail market, at prices considerably higher than those made through wholesale outlets. Nevertheless, in light o f slowness and rigidities o f more formalized procurement and purchasing processes, the units see petty cash payments as a useful method to meet their purchasing needs. MANAGEMENT OF EQUIPMENT AND INSTALLATIONS Equipment and installations (fixtures and fittings) in health institutions represent a costly investment and are critical components o f many treatments. Poor conditions o f equipment and installations adversely affect the quality o f service offered and also threaten patients' safety. This subsection reports on survey findings related to procurement and maintenance o f equipment. Acquisition of Equipment and Installations Unpredictable availability of funding for large equipment purchases: The planning and acquisition o f equipment for health units i s usually centralized in the Health Secretariats, and sometimes in other secretariats (such as in the Executive branch or in the Finance Secretariat). Equipment acquisition often depends on ad hoc opportunities and the availability o f specific funds, which frequently are linked to the existence o f international financing or amendments (riders) to federal legislation. This context creates situations where there may be no resources for acquiring new equipment for many years followed by a substantial inflow o f funds which have to be spent within a short space o f time. Because o fthis tendency, purchasingis frequently carried out centrally and in large quantities, and then distributedto a large number o f health units, according to criteria set by the financier. This process often results inthe purchase o f unsuitable equipment, which does not meet the needs o f health unitsand terms o f addressing demand. Once resources are secured and equipment selected, the time needed to complete the purchase normally takes between 2 to 5 months. Delays, however, cause other problems: the available funds may fall short because o f price increases. This then may require reinitiating the process, resulting in still more delays or even the cancellation o fthe entire transaction. 47 The analysis of equipment (as well as installations) i s more useful and informative at the level of health units, where the equipment i s actually installed and used. The existence of diagnostic equipment in the units varied from 51% for radiology equipment to 9% for magnetic resonance equipment. Availability i s much higher in the hospitals than in the outpatient clinics. The most prevalent item for these clinics was a clinical analysis laboratory (25% among surveyed outpatient units). Various outpatient clinics reported not possessing the equipment required to treat patients. This complaint was rarely voiced by the hospitals. The average age of equipment in the sampled units was 7 to 8 years, ranging from recently acquired equipment (less than 1 year) to equipment with more than 20 years ofuse. The examples reported in Box 3.2, while extreme, are illustrative of problems in the equipment purchasing process and the construction of buildingsand installations. Inpart, such problems stem from external factors (such as the opportunity to access financing through an external funding or a congressional bill, but in general they are the result of inadequate planning, coordination and standardization. As suggested above, it is common that equipment does not correspond to the needs and specifications of the health unit (nor was it requested by the unit). Upon arrival at the site, the facility or the secretariat lacks the technical know-how to install and operate the equipment. While these problems may have lessened in recent years due to rationalization efforts by the Ministry o f Heath and sub-national health secretariats, they still do occur with some frequency, as confirmed by the survey. Maintenance ' Inadequate maintenance: Inorder to keep equipment and installations insmooth working order, it i s necessary to have a systematic and funded program for preventive and corrective maintenance. Yet when budgets are tight and, especially, when budgets are reduced, budgetary allocations for maintenance are normally one of the first line items cut. Maintenance i s oftenjudged to be of low priority inthe short term. The study secured little information about overall equipment levels and their state o f repair. However, the results did reveal that the majority of state and municipal secretariats depend upon corrective maintenance and very few cases of a preventive maintenance were reported. The main problems cited in relation to equipment include obsolescence (25%) and disrepair (25%). These 48 situations lasted for more than 6 months in some cases. Even inthe case o f "obsolescence", the real reason appeared to be lack o f preventive maintenance. The mean utilization rate o f equipment among municipalities which submitted information varied from 60% to 100%. Turningto equipment maintenance at the unitlevel, 55% o fhospitals reportedpossessing corrective maintenance programs and 39% applied preventive maintenance. The remainder either did not supply information or reported the existence o f formal maintenance program. In the case of outpatient clinics, these proportionswere 45% and 25%, respectively. The majority o f the hospitals and outpatient clinics reported that most o f their equipment was in satisfactory or good working order. The proportion categorized as in"good" or "satisfactory" state o f repair ranged from 75% for CT scanners to 100% for magnetic resonance equipment (Figure 3.3). Nevertheless, the high rate o f breakdowns reported in the preceding 6 months does, to some extent, cast doubt on these results, varying from 15% for ultrasound equipment and laboratory equipment, to 40-45% for radiology and other medical equipment. Several months elapsed before the equipment was repaired and some units were forced to suspend or reduce services that relied on this equipment. Respondents cited cases o f equipment not beinguseddue to the lack o f spare parts or essential supplies. For example, 18% o f hospitals reported lack o f necessary reagents for laboratories. Others mentioned incomplete or inadequate installation and lack o f a qualified technician. This survey also reported on the general state o f facility installations as subjectively assessedby the respondents. Between 55% and 66% o f hospitals rated their installations as "poor" or "very poor", and only one-third qualified them as "good" (Table 3.4). For out-patient clinics, the proportion o f "good" and "satisfactory" was much higher, probably because a significant number have been recently constructed. FIGURE3.2: EVALUATION THESTATEOFEQUIPMENTAND FREQUENCYBREAK-DOWNS OF OF DURING PRECEDING6MONTHS (Yo) 50 Radiology 45 40 rn Magnetic 35 Resonance 30 0 Ultrasound 25 20 15 0 CTScan 10 5 rn Laboratory n " 8 Bad+VeryBad Broken Others 49 TYPE GoOD SATISFACTORY POOR VERY POOR Buildings 30 5 51 14 Electrical 32 8 34 26 Plumbing system 27 7 46 20 Laundry 35 10 26 29 Kitchen 32 6 43 19 SUMMARY ASSESSMENT This section summarizes the main conclusions concerning the management o f materials, plant and equipment in SUS. Although current rules appear effective in limiting the likelihood o f misappropriationo f resources, their strictness and lack o f flexibility create significant distortions in inputmanagement, resulting inwaste and compromising quality. Acquisition o f supplies and medicines accounts for 20% o f the health sector's financial resources, and i s generally the responsibility o f state and municipal health secretariats. There are several methods o f acquiring supplies and medicines: public tender, price surveys, letters o f invitation / calls for bids, direct purchase, and reverse auctions. The larger i s the value, the more stringent are the methods and requirements for purchase, for the sake o f preventing corruption or favoritism to certain suppliers. These stringencies often translate into delays or cancellations o f purchases because o f irregularities, and as a result, suppliers often raise their prices as a means o f factoring in the costs o f uncertainties in dealing with the public sector. For the health sector itself, these stringencies often result in supplies and medicines being unavailable, with secretariats and health unitshaving to resort to emergency purchases, at a much higher price, to meet immediate demands. There i s consequently a need to streamline the acquisition process while still maintaining some controls over corruption and political influence. In part, this can be accomplished through better inventory control. With sufficient information about the status o f inventories, acquisitions can be made with sufficient lead time, building in controls for corruption and political influence and allowing enough time to avoid delays. Acquisition o f equipment and installations i s hampered by unpredictable availability o f funding. There may be several years when no funding i s available, despite a recognized need, and then suddenly a substantial inflow of resources, usually linked to international financing, that must be spent within a short period o f time. This often leads to wasteful purchases, with some equipment being purchased for a foreseen need in the future, even though there is no immediate need. As a result o f inadequate maintenance, lack o f qualified personnel to operate equipment, and lack o f physical installations inwhich to use newly acquired equipment, depreciation i s highand equipment becomes obsolete prior to being sufficiently utilized. The principal actions for improvement would be to enhance maintenance, and for future purchases, to smooth the flow o f new equipment acquisitions. Where there i s no maintenance program, installations inpoor repair cause a reduction inthe quality of care, and a higher risk o f service interruption.Box 3.3 below provides an example o f the impact o fpoorly maintained equipment o f care delivery. 50 More specifically, the survey revealedthe following shortcomings inmaterialmanagement: Suuulvuurchasing andmanagement: Tenderingand the rules covering this process were designed to prevent misappropriation o f public funds, and do reduce the likelihood of such events. However, the excessive rigor and rigidity of the regulation, which require a degree of fine-tunedplanningthat i s rarely found in practice cause distortions and contribute to significant loss and wastage. These rigidities and lengthiness in the procurement process encourage managers to resort to creative circumvention o f the rules, including fragmenting purchases into smaller bits to use simpler and more agile purchasing methods, albeit at the cost of higher prices. Long purchasing processes and extended terms o f payment encourage suppliers to build additional costs into the prices they quote. As such, purchasers in the public sector cannot expect competitive pricing by potential suppliers which intheory tendering processes should promote. Consequently, they frequently end up payinghigher than market prices. These system rigidities are compounded by weak procurement skills at decentralized units, narrow interpretation of regulations, poor planning, low capacity in supply management, inadequate control of stocks, the existence of multiple storage areas and stocks in hospitals, and inefficient modes of dispensing drugs to patients. Equipment urocurement and management: Although in recent years the Ministry of Health and the health secretariats have attempted to foster greater standardization of equipment and better planning and allocation, this study shows 51 that most facilities still encounter serious difficulties regardingthe availability and management of installations and equipment, 0 The acquisition of equipment depends significantly on the availability of international funds and irregular Congressional amendments. Capital investment financing does not follow systematic planning based on need assessments in most states and municipalities. There are no predefined and transparent criteria for acquiring or distributing equipment when funding is available. In short, equipment planning appears an ad hoc process. 0 Due to a lack of a consistent program and sufficient funding for preventive maintenance, the frequency with which equipment breaks down results in service interruptions, lowering quality of care. Inthe longrun,this results inhigher costs becausepoorly-maintained equipment has to be replaced sooner. Lack of qualified personnel to operate equipment, supplies stock-outs, or supplies which are not suitable for the operation of the equipment are additional factors that contributeto service suspensionand poor quality. 0 Physical installations are often in a state of poor or very poor repair, which undermines the quality of care. The lack of maintenance contributes to increased expenditure because it eventually results inmajor remodeling, or inextreme cases, new construction. 52 4. HUMANRESOURCEMANAGEMENT In a sector such as health where the government's role includes the provision of services, management o f a contingent o f personnel dedicated to service delivery i s a particularly important aspect o f resource management. The health workforce in any country consists o f a large and complex array o f professional, semi-professional, technical and administrative occupations. This complicates the development and implementation o f the principal human resource functions such as recruitment, retention, compensation, education, qualification, and performanceassessment. Although it i s universally recognized that human resources i s the most important aspect o f health services management, it is often overlooked by health policy makers and healthcare professionals who tend to be more concerned about policy issues such as access to services, populationcoverage, and financing. Human resource management in the health sector i s arguably among the most challenging given the sector's characteristics. These include the organizational and task complexity which makes it more difficult for policy-makers and senior managers to monitor staff performance and hold them accountable. More than any other sector, quality assurance inhuman resources inthe health sector i s critical as adequacy o f staff qualifications relate to possible life-or-death consequences. Recruiting and retaining competent staff can be a challenge given the presence o f the strong private sector labor market which diminishes the relative attractiveness o f public sector healthcare career. Given the weight o f the personnel wage bill in the total health budget ina typical government, addressing these challenges will require a comprehensive reform agenda to ensure that the health workforce provides effective care at an affordable price. Trends in the public sectors in developed countries involve decentralizing authority to the lowest practical level and increasing flexibility in personnel management with clear specification o f performance expectations and accountability. A handful o f sub-national governments in Brazil are taking initial steps inthese directions. However, in Brazil as elsewhere policy makers are generally loath to initiate organizational or managerial change that would result inorganized resistance from unions and professional associations. Instituting such systems also requires a reasonable level o f integrity and professionalisminthe public services as well as sophisticated management techniques and instruments, which tend to be lacking ingovernment bureaucracies inpoorer countries. Inmost developing countries, a delicate balance i s required to allow a sufficient degree o f managerial flexibility (e.g., the authority to hire and fire staff at the facility level) on the one hand, and restraint on corrupt personnel management (e.g., nepotism, moon-lighting) on the other. The survey did not aim to collect information for a comprehensive assessment o f human resource management practices. Rather, it focused on a small subset o f common issues related to decision- making authority over personnel, supply and qualification o f staff and personnel performance. This chapter reviews survey results regarding these issues for state and municipal health secretariats and service facilities. PERSONNEL MANAGEMENT Expenditure on human resources represents the largest item in the budget o f health institutions, accounting for 60-65% o f spending in hospitals and 8590% in outpatient clinics. This sub-section examines the efficiency o f human resource management at two levels: health secretariats and health units. 53 Human ResourceManagement by Health Secretariats Decision-making authority: Autonomy for and authority over human resource management is a key aspect o f resource management. When authority over HR management i s conducted far the service delivery level, the less likely facility managers will exercise close supervision and will be able or interested inmotivating personnel. The survey results show the state health secretariats directly manage human resources. All state health secretariats report having human resource departments which in most cases are responsible for paying salaries as well as hiring and firing o f staffa6'However, this i s generally not the case at the municipal level. Hiring and firing at the municipal level i s carried out by the human resources departments located in health secretariats in several municipalities (Pelotas, Port0 Alegre, Sobral, Rio de Janeiro, Rondon6polis and CuiabS). However, this same function is performed centrally by other secretariats, usually the "Administrative Secretariat" in others (S3o Paulo, Parintins, Barra do Bugres, S3o Gongalo, Manaus, and Assis). In smaller municipalities (such as Resende, Barra do Bugres and Ivoti) health secretariats do not have human resources department, and often have little decision making authority regarding personnel. Only four o f 17 health secretariats are responsible for paying salaries to healthper~onnel.~' Oversight: Human resource management appears plagued by a number o f persistent problems, including unavailability o f hired ~ t a f f , ~absenteeism, and lax control o f work hours (e.g., workers ' who do not work their full quota o f hours specified in their contract). This suggests that the real number o f worked hours i s a considerably less than the nominal hours specified incontracts. While absenteeism i s often cited as a major problem, no secretariat kept records o f sufficient detail to quantify this problem. One secretariat estimated absenteeism at 2%. In addition, there i s no systematic record-keeping o f employees who do not fulfill their required hours (e.g., one secretariat estimated this as 1%, while another reported 20%). The existence o f employees who are on leave due to illness or other reasons was mentioned by only two state secretariats; one estimated this problem at a mere 1.5%. Another important problem i s the co-existence o f workers who have been "borrowed" from other public agencies or units (and the reverse i s also true: "lent" to other units). These "borrowed" and "lent" employees can represent as much as 20% o f the total staff assigned to a facility. They are paid by agency o f origin, applying a complex array o f salary scales. More importantly, such workers have been contracted under different labor regimes (such as the civil servants, workers hired under private labor law, and temporary contractors) and remain formally subordinate to the agency o f original that hold their contracts. This situation has largely arisen from the process o f `municipalization': health units have been devolved to lower levels o f government. But it has also been amplified by the growing practice o f contracting out services to third parties. Although the sample showed that the proportion o f outsourced personnel varies across secretariats, in one state secretariat it reached 60%. However, this state had little capacity to manage the contractor^.^^ As 69 Exceptions include the State o f Rio Grande do Sul where the Finance Secretariat pays personnel and Ceara inwhich all hiring andfiring is centralized inanother Secretariat. 70 The definition of pays the salaries o f workers seems to be independent o f the size o f the secretariat or the municipality. For example, in the small towns o f Sobral and Assis, payment i s devolved to the municipal health secretariats, whereas in the huge metropolises o f Sfio Paul0 and Rio de Janeiro it is centralized in the Secretariat for Public Management and inthe Administration Secretariat, respectively). 71 Staffhired for a given facility may be working at other facilities or administrative units, or may be on extended sick leave. 72 Source: SANIGEST. "Estudio de las Herramientas Contractuales entre el Gobierno delAmazonas y las Cooperativas Prestadorasde Servicios de Salud." Consultant's report, 2005. 54 reported by managers inthe survey, managing personnel under different regimes produces conflicts and increasessignificantly the complexity of HR management. Staff qualification and performance management: The state secretariats did not report problems arising from under-qualified staff, low productivity and staff shortages or excess. In contrast, a number of municipal secretariats acknowledged such problems. Intwo states (Rio Grande do Sul and Mato Grosso) as well as a number of municipalities, staff i s submitted to performance evaluations. These can take many different forms: inminority o f cases a permanent review system has been established. However, most apply performance reviews to recent hires near the end of a two- or three-year probationary period. Use o f performance incentives i s rare. Two factors contribute to the absence of performance incentives: (i) the rigidity of public service laws; and (ii) lack of salary differentiation between very different levels o f employees despite difference in qualifications and responsibility. Overall, the incentive regime i s perverse, discouraging both productivity and efficiency: high productivity and quality i s not rewarded (or even measured) and the reverse is not punished. Indeed, the most productive worker i s said to often be the subject of hostility from less productive workers, who pressure himor her to slow down their pace and fall in line with their less productive colleague^.'^ HumanResourceManagementinthe HealthUnits Decision-making authority: Of the hospitals in the sample, 82% have a human resource department. However, hospitals' decision making authority regarding personnel issues i s limited. Only 30% of hospitals are responsible for paying their personnel, for the remaining 70% payments are centralized in the health or some other secretariat. Only 41% conduct hiring; 25% are responsible for dismissals; and 54% are able to transfer personnel internally without central level approval. Not unexpectedly, only 41% of the hospitals decide or approve training programs for their workers. The proportion of outpatient units having a human resources department is much less (40%), and the degree o f authority regarding human resource management i s less than hospitals. The vast majority report that they arenot responsible for hiringor firing of staff. Weak control, limited performance management, and low qualifications: The previous section demonstrated that hospitals and outpatient facilities have limited autonomy to manage staff. Consequently, they make little use of personnel management and evaluation instruments. For example, 27% of the hospitals report that they use some kind of formal mechanism for evaluating performance. But inmost cases these mechanisms are applied only duringa probationary period. A limited number of health secretariats and large facilities have implemented an evaluation system based on the opinions of managers and colleagues. However, these schemes do not focus on actual performance or productivity. Problems related to human resources reported by the health units are considerable. Although some are similar to those identified by the health secretariat as observed inTable 4.1 below, the situation appears more serious inthe healthunits. They are as follows: (i)Lackorexcessofpersonnel:41%ofthehospitalsand30%oftheoutpatientunitsassessedtheir personnel as insufficient (inmost cases) or excessive. The average imbalance between the approved and actual number of staff was 20%. The greatest imbalance was reported among pharmacists and technicians. 73 Delays in salary payments are rare. This was reported in only one municipality o f the sample. 55 (ii)Multipleemployment regimes: Thecoexistence inthe sameunit ofworkers fromvarious contractual administrativeregimes(public sector, private sector, other government departments, etc) and "borrowed" from different agencies is pervasive. This situation was apparent in 36% of the hospitals and 45% of the outpatient units. This situation causes problems of duplicated command because workers transferred or borrowed from other government levels of institutions remain legally boundto their original institution, while managedby the receiving institution. Differentiated salaries (i.e., with the same job/position being remunerated at different levels) lead to conflict and low morale; (iii)Instability of staff: Staff turnover appears to be major issue, identified by 36% of the hospitals and 20% of the outpatient clinics, affecting about 25% of total staff in many units. Turnover is mainly related to illness and transfers. (iv) Absenteeism and moonlighting: This was identified as a major problem for 32% of the hospitals and 20% of the sampled outpatient clinics. Non-compliance with working hours was a problem for 30% and 35% of hospitals and outpatient units respectively. Similar to the health secretariats, most facilities do not maintainrecords to enable quantification of the problem. (v) Low staff qualifications: Unlikethe secretariats, the units suffer from poorly qualified. 32% of the hospitals and 20% of the outpatient clinics mentionedthis as a problem. The dearth of qualified staff appears more serious insome areas such as administration and management. Low Productivity 27.3 25.0 7.7 47.1 15.4 0.0 Staff laid-off 25.0 50.0 38.5 17.6 23.1 0.0 Staff loaned to other institutions 15.9 50.0 15.4 0.0 7.7 0.0 Staff on loanfrom other institutions 15.9 75.0 7.7 11.8 15.4 0.0 Others 18.2 25.0 0.0 11.8 38:s 50.0 The survey results suggest that insufficient staff is inlarge part due to the overall process of human resources management. The problem i s localized in certain professional categories and responds to highlevels of staff turnover, absenteeismand non-compliance with working hours. A contributing factor includes inflexible legislation governingpublic service employment which limits managerial capacity to stimulate productivity and quality through incentives or punishing inappropriate behavior. Further, while the units face a set of human resource problems which inprinciple are of a managerial nature, managers are powerless to solve them due to their lack of authority over staffing 56 practices. Table 4.1 shows that the relative importance of these problems varies with the type or nature of the hospital. Also, they are much more frequent among public sector hospitals than private. Federal and municipal units tended to demonstrate the highest incidence o f problems.74 SUMMARY ASSESSMENT Expenditures on human resources represent the majority of health spending, ranging anywhere from 60-65% in hospitals to 8590% in outpatient clinics. These human resources, however, are poorly administered. Control of staff i s weak, with little oversight of work hours and absenteeism, with the result that the real workforce i s much smaller than the nominal one. Even when workers are present, many are under-qualified and under-motivated. The structure of incentives discourages productivity and efficiency. These problems are endemic to secretariats as well as to health facilities themselves. Greater accountability, control, and training, and a system of incentives that motivates efficiency, can leverage existing human resources to provide more and better quality care to patients. Laws governing human resources in the public and private sectors are outdated and in need of reform." The legislation governing the public sector i s especially rigid, allowing little flexibility in hiring, firing or providing performance incentives. However, the problems identified inpersonnel management inthe health secretariats and facilities are not solely due to limitations and distortions imposed by the legislation. Many of the problems result from poor managerial practices, and in some cases of an absence of management. The specific shortcomings are as follows. 0 Inefficient staff mix (by category and level): excess of poorly qualified personnel and shortage o f qualified personnel, principally inmanagerialjobs and inthe smaller units. 0 Inadequate and inefficient staff allocation according to demand or needs. This is due principally to a lack of effective planning and inflexibilityregardingallocation of personnel. 0 Absence of effective incentive systems, performance evaluation, and o f opportunities for professional advancement. Where pay-for-performance exists, they often are applied to all workers and incorporated into fixed remuneration. 0 Poorly-focusedtraining and skills updating, with no impact assessment. 74Managers o f clinical staff face problems similar to those with encounteredwith other personnel (no shown inTable 4.1): insufficientpersonnel(27% o fhospitals), incomplete working hours (36%) and absenteeism for (16%). The study revealed that 70% o f the hospitals had in-house clinical staff. The remainder reported some or all clinical staffing was outsourced. Inprivate hospitals, and increasingly inpublic sector hospitals, there is a tendency to have in-house clinical personnel which work on shifts (especially for emergency and intensive care) and contract out diagnostic and therapeutic personnel. ''Such reforms have beenunder discussion by Congress for several years. 57 5. PRODUCTION AND QUALITY MANAGEMENT This chapter reports the survey results related to efficiency and quality o f services. It reviews a subset of productivity and quality indicators reported by survey respondents and attempts to link these findings to problems reported inprevious chapters on planning, budgeting, and material and resource management. Although not a major focus of the survey, the results provide insight into how facilities measure and manage service production and quality by analyzing indicators of productivity, efficiency and quality. Quality i s an abstract notion consisting of multiple dimensions that change constantly. Donabedian (1980) developed a quality assessment framework based on three components of quality: structure, process and results. These components became the cornerstone of quality assessment instruments and standards worldwide. The evaluation of structure consists of the assessment of the capability of care providers, including facilities, equipment, manpower and financing. Process consists of appraisal of the care process itself, ideally based on evidence. The assessment of outcomes consists of identification of the end results of care processes usually specified in terms of patient health, safety or satisfaction. The survey focused on structural aspects of quality in terms of plant, equipment, supplies and staff qualifications. Productivity i s a key determinant of efficiency and ultimately costs. Unutilized beds and underused surgical units and human resources result inhigher and often wasteful production costs. How inputs are allocated to maximize production i s an important managerial function. Efficiency and productivity i s also closely related to quality. In addition to the regrettable health consequences borne by individuals, low quality also generates significant unnecessary costs, threatening the affordability of the health system. Although researchis limited, available studies inBrazil show that poor quality i s associated with increased spending.76Inthe US, where considerable work has been performed on the links between poor quality and costs, poor quality interms o f overuse, underused, errors, adverse events, lost information, repeating of diagnostics and procedures, and re-admissions result in lost income for individuals and higher health spending.77 Moreover, findings from Brazil and elsewhere show that hospitals with highproductivity (and production) for complex procedures (such as coronary bypass surgery) tend to have higher quality as measured by lower mortality rates.78(Noronha, 2001). The survey gathered information on the productivity of physicians and surgical theaters. PRODUCTIVITY AND EFFICIENCY The first productivity indicator surveyed refers to physician prod~ctivity.~'Physicians usually provide the core service in health care and are thus directly or indirectly responsible for the organization, provision and efficiency of most health services. However, few hospitals measure or monitor their productivity: less than 9% of the sampled hospitals do so, with this proportion being highest among municipal hospitals (16%) and lowest at federal hospitals (6%). The survey measured productivity in outpatient settings. Inhealth units where it was possible to gather information, doctors completed on average 75% of their contracted work hours, but carried 76World Bank (2007, forthcoming). Op. cit. 77For a reviewo f these studies, see Institute o fMedicine, ToErr is Human: Building a Safer Health System, National Academy o f Sciences Press, 2000. 7aWorld Health Organization. Qualify and Accreditation in Health Care Services:A Global View: Geneva: WHO, 2003. p. 88. 79Manpower productivity is measured here as the quantity o f services produced per unit of time (e.g. number o f consultations per hour). 58 out 100% of their quota of consultations (Table 5.1). This means that they attend more appointments per hour than suggested by the M O H standard of 15 minutes per appointment. On average, productivity is 6.72 appointments per hour, or around 9 minutes per appointment. This may be interpreted as a good level of productivity. However, at suggested by the MOH 15-minute norm, it is insufficient time inmost cases to conduct adequate medical diagnosis and treatment. This apparent "efficiency" may thus come at the expense of quality. The proportion of staff per bed i s a commonly-used indicator of efficiency TABLE5.1: INDICATORS OF PRODUCTIVITY inresourceallocation, with lower ratios IN OUTPATIENT I'REATMENT indicating higher staff productivity and INDICATOR VALUE lower costs. Inthe sample, the average Doctors' hours o f work vs. contracted hours 75 % total staff to bed ratio was 4.84. There was little variation between groups of Consultations produced vs. scheduled 100 % hospitals, but private hospitals Consultations per total personnel (per hour) demonstrated the lowest ratios. The I Consultations per doctor per hour I 6.72 I proportion of nursing staff per bed, ~. often interpreted as an-indicator of quality of care, was less than 2 inmost hospitals, with a general average of 1.6. The highest rate was at municipal hospitals and the lowest at non-profit hospitals.*' The use of operating rooms provides another indicator of efficiency. The proportion of canceled to total surgeries reflects the quality of the management of clinical services as well as external factors. Both the proportion of cancellations and their reasons indicate serious managerial problems at the clinical level. The 14 hospitals that provided information had on average a high proportion of canceled operations (17%). This i s significantly higher than hospitals participating in the CQH program (3.5%) in Sslo Paulo." The cancellation rate i s highest among non-profit and municipal hospitals (18 to 20%) and lower among federal hospitals (less than 10%). In general, the most frequently presented reasons for cancellation are shown in Figure 5.1, Approximately 60% of cancellations were for reasons that were external to or independent of the unit's management, such as the patient`s clinical conditions, patient absence at admission, or an emergency procedure, but the remaining 40% were due to poor clinical management or inefficient operation of the hospital, includingphysicianabsence or conflicting schedules, and missing staff, supplies or diagnostic tests. A substantial part of the inefficiency encountered inthe health units is due to the organization and management of medical and technical services. In many cases these are poorly distributed and utilized, combining excess capacity for some services with overuse in others. Such is the case, for example, with the operating rooms: queues or postponements of operations on certain days and times, while they are empty in others. Inother cases, consultation rooms in hospitals are reserved for specialist teams but are underutilized. Rather, space is referred to demonstrate the "prestige" of the specific team rather than demand. This results indifferent use rates among consultations rooms. Room, However, it was possible quantify this variation. As a result o f the weight o f the municipal hospitals o f Rio de Janeiro and their high rates of occupation, the proportion o f nursing staff per patient per day is much lower inthe municipal hospitals than inthe others, 2.04 against an average of 5.1. 81CQH (Program for Hospital Quality Control) is a quality assurance and benchmarking initiative sponsored bythe Sao Paulo Medical Association, andhas over 120hospitals enrolled. 59 , -_ - x _ x x , ,"I,_ xxI".I "" ..... ...... ,......,..... ...... ...... ...... .... ...... ..... ......, j I to keep proper patent records, insufficient or poorly qualified staff, and insufficient equipment and installations (Figure 5.4). A third of hospital services do not control sterilization of supplies and over half the A&E departments do not follow the rules for biological safety - such as disposing of needles and other perforating instruments inthe special receptaclesprovided. FIGURE5.2: MAINPROBLEMSAFFECTING QUALITY INHOSPITALS 4 0 3.5 3 0 2 5 2 0 1 5 1 0 0 5 Federal State 0 MUniCiDal FIGURE 5.3: PRINCIPLE PROBLEMS AFFECTING QUALITY IN OUTPATIENT UNITS I 4.0 3.5 3.0 2.5 2 0 1 5 1 0 0 5 61 FIGURE FREQUENCYPROBLEMSWITHQUALITY INTHEHOSPITALS PAUL0STATE(%) 5.4: OF OF SA0 I 0 20 40 60 80 100 Difficulties in getting patients referred Inadequate completion of medical registers Inadequate space in lCUs lCUs lacking minimum equipment and teams stipulated by law lCUs with no specialist present Emergency unit inadequate (staff, Emergency unitequipment) with no 24-hr support sewices Emergency unit without full medical team Births attended by unskilled personnel Caesarian rate Non-controlled sterilisation of supplies 1 Public hospitals I PriMte hospitalsI Source: CREMESPJournal, No. 190, June 2003 SUMMARY ASSESSMENT Problems in the planning process, in the implementation o f the budget, and in the management o f material and human resources directly affect the efficiency, cost, quality, and effectiveness o f the services delivered. Few health secretariats or units regularly collect or measure information on productivity, efficiency, or quality. In some cases, the classic indicators o f productivity (average hospital-stay, turnover o f beds, occupation rate, etc.) and quality (mortality and hospital infections) are monitored, but they are rarely used for evaluation, management, or decision-making. More systematic tracking o f such indicators and their incorporation into health planning i s essential for improving quality and efficiency o f services. The data collected through the survey suggest unsatisfactory efficiency and quality in the sample hospitals, with significant variations from hospital to hospital and between groups o f hospitals classified by type. This performance reflects the problems found inthe study and discussed in the preceding chapters, such as inadequate management o f physical and human resources, inadequate planning and the lack o f mechanisms and practices for evaluating results. 62 6. CONCLUSIONSAND RECOMMENDATIONS The objective o f this study was to analyze the quality o f public expenditure in health and its potential impact on service delivery. The study focused on structures and processes related to resource allocation, input management, planning, budgeting, and budget execution. The paper also aimed to relate the effectiveness o f these functions to the broader governance environment. Information was collected through researching a sample o f secretariats and healthunits, tracking the flow o f resources through the different levels o f government down to the health units, and analyzing the utilization o f these resources at ground level. The analysis o f the quantitative and qualitative results shows the existence o f various problems, both structural and procedural, which impact negatively on the quality and effectiveness o f health services provided by SUS, as well as on the cost o f these services. This suggests governance failures especially in terms o f lack o f incentives and accountabilities to stimulate performance. This chapter returns to the principal conclusions o f the study and proposes measures to address the problems found, in an attempt to contribute to improving the efficiency and quality o f SUS. The main conclusions o f this study are summarized in Table 6.1 below, which presents the main problems encountered, relates them to the structural causes as well as governance failures, and identifies their principal consequences at the level o f health service management and delivery. Emphasis i s given to the way the services function at the level o f the health units, and their management. Six basic challenges stand out: (i) the fragmentation o f the planning and budgeting process, (ii) the inflexibility and complexity o f budget management, (iii) lack o f management the autonomy at the local level, (iv) inadequate management information, (v) poor quality o f local level management, and (vi) inadequate structure o f incentives. These are discussed in greater detail below, followed by recommendations on how to improve ineach o f area. FRAGMENTATIONTHEPLANNINGANDBUDGETINGPROCESS OF The main conclusion regarding planning and budgeting i s that, from a formal point o f view, the system i s well developed, though complex (e.g., fixed stages, time stipulations, a series o f reporting requirements), as a result o f improvements over the years. Nevertheless it still contains major limitations inpractice. First, plans are frequently drawn up by sub-national units, but inresponse to legal requirements and not as an instrument o f management at the local level. Thus, once such plans are approved, they are frequently shelved without really guiding resource allocation and performance management. In short, planning and budgeting are not used as a basis for holding public entities accountable. Naturally, meeting budgeting norms i s a legal requirement throughout the public sector, and health providers need to follow them. However, the health sector managers are faced with additional formal requirements o f the SUS planning process, which works in parallel to the main process. This constitutes additional transaction costs for public health managers compared to those inother sectors. Rational planning i s also limited by the fragmentation and disjunction between the different phases o f the planning-budgeting-execution-evaluation process. The various planning instruments, which should constitute different stages in the same continuous process, very often end up becoming isolated and disassociated from the other products. This happens even though the process is, in principle, integrated and `linked' (Directive GMMS No548 o f 12 April, 2001). Causes o f this fragmentation are various. First, each step i s undertaken by a different type o f specialized 63 professionals, with very different training, and frequently carried out in different physical locations with little communicationwith each other.83 A corollary is that each stage of the planning-budgeting process is governed by different technical and professional logics with little substantive conciliation. Inthe master-planning stage, technical concerns defined by the Program Directives predominate, as well as health priorities, with little consideration givento economic realities and financial criteria. When the budget is beingdrawn up, economic and financial elements (especially the historical level and pattern of allocation and the revenue forecast) predominate. During execution, the cash flow determines the `rhythm and direction of the actions, which often implies a change inthe planned activities, but without the time or opportunity to revise the Master Plan. The availability o f funds thus ends up substituting the plan itself. INFLEXIBILITY AND COMPLEXITY OF BUDGET MANAGEMENT The manager of the local public health unit almost always finds himself "following the budget" rather than "managing funds." This i s due to the inflexibility and formalism of the system, given that the need for multiple authorizations and ex-ante controls takes away flexibility in managing resources, thus restricting his autonomy and overall responsibility. Keeping to, and controlling budgets, revolves around following legal prescriptions, norms and timetables, with little concern as to the result achieved. Inthis sense, budget execution becomes disconnected from the planning process. The execution of the spending plan i s complicated by a myriad of laws and norms covering the purchasing and contracting processes, the management of human resources and accounting and reporting requirements. The inflexibility of this legislation, designed to limit the misuse of public funds, also limits the autonomy of the local manager andthus his capacity to effectively managethe resources at hand. While the legislation does offer some flexibility, the local manager, either through his ignorance and fear of infringing any norm, or through opting to take the easy way out, tends to make a conservative reading of the law and not make use o f what it does offer. For example, inthe typical case of accepting the lowest tender: the legislation does offer the option of putting quality above price as a criterion for choosing one tender over another, but the administrator frequently ends up opting for the lowest price as ifit were the only criteria. There are also cases of managers who, faced with the complicated formal requirements for punishinga subordinate who is absent or incompetent, simplygive up trying to managehim. The practice of legalistic management has serious consequences in terms o f delays in the purchasing process, leading to shortages of material and medical drugs, higher costs in the acquisition o f these goods and damage to the quality o f service. LACK MANAGEMENT OF AUTONOMYAT LOCALLEVEL As we have seen, the majority of public health units have little or no autonomy in the managerial and financial sphere. They do not control their payroll, and they only manage a part of their purchases, which varies according to the type of unit and its geographical location. They are unable to hire or fire staff, and often even have little information as to the state of their finances. Fund allocation i s defined in the budget, over which the unit generally has very little influence. Such a 83Planning and programming are normally the province o f technical staff (doctors, unit managers, technical planning officers), while budget preparation is undertaken by administrative and financial staff (accountants and administrators) who have little familiarity with medical.andprogramming aspects. 64 manager in truth manages very little - only a fraction of his unit's resources. In exchange, the manager or director of a health unit i s not likely to be called to account for the successes and failures of his term. The low level of autonomy and decision-making capacity at the healthunit level makes the process of planning and budgetingof little relevance to the unit and its manager. Moreover, it results in a lack of commitment and risk- and responsibility-taking on the part of the manager as well as absence of data relevant for managing the unit. It i s inorder to correct this situation that a handful o f states have set up self-managing institutions, such as support foundations and social organizations to manage all or part of hospital services. Administrative and financial autonomy i s particularly limited among municipal health units. Inthe majority of cases, decentralization goes as far as the City Hall or the Municipal Health Secretariat, but does not reach the health units, which continue to confront serious problems stemming from their lack of autonomy, incentives and accountability. INADEQUATE MANAGEMENT INFORMATION Another important conclusion to be drawn from this study i s that programs and health units often have to be run without the benefit of the information they need for adequate planning, monitoring and evaluation. This situationalso contributes to the inability to holdmanagersaccountable for their performance. This is still a common reality, despite the respectable amount of existing information and the quantity o f data routinely collected, both o f a technical and financial nature. This inadequacy has two basic causes: first, as discussed above, lack of managerial autonomy limits the management's interest in using (and thus collecting). Second, the sophisticated information systems that are inplace are all concerned with financial control and with verifying whether norms and provisions have been followed.84 Thus, the current practices are not geared to producing managerial information on fund allocations by the end use, by the type of treatment carried out, or by the populationgroup treated. The existing information systems do not permitautomatic consolidationof health spending, whether horizontally (between units on the same level or between similar programs) or vertically (between different levels of government). Since the absence of uniform classification methods makes their consolidation and comparison difficult, attempts at consolidating data on public health spending have tended to be stop-gap measures. The most recent and consistent of these i s SIOPS, which should be seen as a great advance, but its coverage is still incomplete (not every state or municipality submits information). The quality of much of the available information leaves much to be desired. The absence of conceptual standardization means that the same data, from two different sources, often do not tally. Data on budgets or performance obtained from the health units has gaps, errors and conceptual differences, which makes comparison extremely difficult, Even though the available information i s often incomplete and imprecise, it still allows useful preliminary analyses that could provide a basis for decision-making and management in the units. But as the majority of the data produced is for "procedural" ends (e.g., to trigger a fund transfer), and for the control of these funds, such data is little used inthe day-to-day management of the unit, 84 SIOPS (Sistema de InfomzacGes sobre OrcamentosPriblicos em Saride) itself suffers from this limitation, although the Ministry o f Health does recognize the need to evolve towards becoming a management instrument. - 65 or for the evaluation of results. This in turn leads to the form o f presentation and quality of information not being appropriate for this purpose. An effort to improve existing information systems and, particularly, to incorporate such analyses into the day-to-day service provision would most certainly contributeto improving the efficiency and quality of services. POOR QUALITY OF LOCAL LEVEL MANAGEMENT The quality of staff involved in resource management (including medical professionals who are involved in day-to-day delivery of services, i.e., execution of a funded program) is less than satisfactory. Many interviewees identified this as a key problem inplanning and service provision. On the other hand, the current policy of human resourcesmakes it very difficult to recruit and retain qualified professionals. Central planning and financial control functions, because they constitute the center of the budgeting system, tend to be staffed with relatively well-qualified professionals. But other functions such as economic analysis and evaluation, for example, tend to be neglected. INADEQUATE INCENTIVES STRUCTURE The process of setting up the SUS during the 1990's was accompanied by a heated debate as to appropriate incentives to be attached to federal transfers and the mechanisms for paying the various service providers. The debate fell into three distinct phases: the first one, which lasted until the mid-l980s, favored the payment of private service providers byfee-for-sewice, in other words, by the quantity of services carried out. At the beginningof the 1980's, payment per individual medical service in hospitals was replaced by payment "per procedure" through the AM system. From the mid-1980s onwards, this system was extended to public sector services and, with the general reform of the health system and "municipalization," the transfer of federal resources to the states and the municipalities was carried out through individual agreements, or cooperative agreements. By the end of the 1980's, and with the introduction of SUS from 1990 onwards, the idea hadtaken root that this mode of transfer created distortions by rewarding the multiplication of services and increasing the existing inequalities in resource distribution (because new contracts were given out in accordance with past results and the existing health network). New criteria were proposed, based on need, to be defined by the size and relative health ratings of the population. But this vision was not translated into concrete form inthe fundingmechanisms. It was not untilthe mid-1990's that a number of primary care programs (such as PSF and PACS) were adopted or expanded with funding levels based on demographic criteria (PAB - MinimumBasic Care). Some of these programs even began to incorporate levels-of-need criteria, as measured by the municipal Human Development Index. But the multiplication of modes of transfers, criteria and payment has produced a gamut of varied incentives which are sometimes contradictory. Inpractice, SUS also operates with many built-in,implicit incentives that result from the system's complexity, internal contradictions, and prevailing emphasis on procedural compliance, as discussed above. These inmany cases have perverse effects contrary to the explicit incentives that contributeto inefficiency andpoor quality treatment. Taken as a whole, these characteristics make up a great incentive for public managers and service providers to pay far more attention to the internal and often formalistic management of the system than to the quality, efficiency, and effectiveness of the health care it offers. Thus, while the explicit incentives are tending, in an incipient way, to take on board the quest for greater efficiency in allocations and production and the reduction of inequalities, the implicit incentives tend to contradict this objective. 66 TABLE6.1: SUMMARY OF PROBLEMSAND THEIR CONSEOUENCES STRUCTURAL CAUSES I CONSEOUENCES FRAGMENTATIONOF TH PLANNINGAND BUDGETING PROCESS Formal and legalistic emphasis of Plans made due to legal requirements, frequently planning inthe public and SUS systems shelved once approved Planning and budgetingoriented toward Plans lacking action strategies, unrealistic justifying the allocation of funds Plans made without resource forecast Truncated and disconnected processes; the various instruments are disconnected Significant oscillations inthe unit budgets and their and fail to complement eachother execution and distribution Lack of monitoring and evaluation of results Disconnect between plan, resource allocations andreal needs FORMALISM AND INFLEXIBILITY IN E JDGET EXECUTION AND RESOURCEMANAGEMENT Inflexible norms and deadlines for budget execution The legislation and structure of the budget limiting flexibility inbudget execution and encouraging Inflexible legislation of personnel and inefficiency procurement and lack o f proactive management Long delays inadministrative and financial processes System orientedtoward procedural Many small andor emergency purchasesusingpetty compliance and financial controlrather cashto circumvent the cumbersome formal processes, than management and evaluation resultingininefficiencyhgher cost, waste, shortage of supplies Lack o f effective humanresource management, especially the difficulty to introduceperformance orientations among staff, and inadequate and inefficient distribution of personnel, with localizedscarcities and spare capacity Hightransaction costs becauseofmultipleaccounting procedures and reporting requirements for specific transfers LACK OF LOCAL MANAGERIAL AUTONOMY Lack of management and financial autonomy inthe healthunits Central planning (legal demands and financial incentive) underminingincentives for local planning Centralized system orientedtoward zentral control, not to local needs Littleparticipationo f the senior sectoral authorities and the health councils inplanning process Centralization of most human resource functions ina central unit, or another Little use of budgetary information for local analysis secretariat and evaluation centralization of expenditure inmany Lack of management information at the healthunit municipalities level The healthunits de facto managing few of their human resources (30% o f hospitals pay personnel salaries, 25% undertake hiringand 54% c a m out transfers) 67 STRUCTURAL CAUSES CONSEQUENCES Information systems oriented toward the Limiteduse of information generated(financial, central control andnot local usage production, etc), especially at the facility level Weak integration of multiple information Most healthunits with little or no financial information systems, each oriented toward one specific purpose Excessivelyaggregatedbudget classificationwith limiteduse for management Inadequate budget structure and control mechanisms for program monitoring and Lack of information on costs evaluation IPartial and inconsistent information on coverage, Emphasis onthe production of services productionand expenditure on nationalprograms rather than their effectiveness or results Igovernment Inconsistency ininformation between levels of LOWMANAGERIAL CAPACITY AT LOCAL LEVEL I Inadequate professional qualifications at Poor planning at the local level and principally inthe local level for planning, managementand healthunits that results in, inter alia, resource shortage evaluation incertainexpenditure categoriesor units, and a surplus Difficulties inattracting and retaining inothers qualified professionals (low Low level of budget execution inmunicipalities and remuneration, unattractive policies) healthunits Limiteduse of modernmanagement Inadequate planning of needs and purchasesprogram, methods and techniques Low level of control of the use of resources and stocks Ineffective management ofphysical and and non-utilization of available resources, human resources Inadequate system for distribution o f drugs and supply Inefficient organizationof medical shortage services Contracts not supervisedor evaluated (only 5% of Lack of systematic monitoring and contracts are evaluated for quality) evaluation of program and activity performance Lack, unsuitability and/or bad state o f repair of installations and equipment Complexity and formality of the modes Difficulties faced by municipalities inqualifying for and requirements of entry into SUS SUS management modalities Requirements and criteria of federal Emphasis on procedure and requirements inactivities, fundingto municipalities not geared little emphasis onresults toward promoting efficiency and equity Highdegreeofinequity inmunicipal expenditure on Lack o f policies and mechanismsto health and infederal fundtransfers to the municipalities stimulate performance, responsibility, quality and efficiency States' and municipalities' failure to comply with EC- 29 Lack o f equal salaries between different contractual regimes IAbsenteeism and non-compliance with work hours 68 RECOMMENDATIONS Various problems identified inthe study are related to governance, organization and functioning o f the public sector in general. The Health Ministry has limited power on its own to change the rules and norms o f the public sector, or influence the finctioning o f the system at other levels of government. Nevertheless, as coordinator o f SUS, the Ministry has various possible courses o f action available to minimize effects o f these problems. Recommended strategies for improved governance as well as use o f public resources are outlined below. Quest for performance has become a worldwide phenomenon among governments. Inreality, if the government, or in the case in question, SUS, does not show good performance, its legitimacy will be questioned. In SUS, however, the administrators of hospitals, programs, districts and municipalities are given few incentives to perform well. Nor are they held accountable to do so. Instead, they appear to be rewarded for sticking to the rules, complying with norms, and maintaining the status quo. This i s partially linked to procedures and rules established by SUS as well as by rules that prevail inBrazil's public sector management in general. This status quo needs to change. A focus on results should increasingly define the SUS (as well as inother sectors) at all levels and also permeate all its processes. Although there i s no one "operational" model for strengthening public sector performance, the basic idea i s to create the governance environment and the corresponding support systems and managerial know-how to elevate the SUS's performance system wide (i.e., the production o f effective activities o f a highquality and o f services delivered at reasonable cost and which are considered satisfactory by the users o f the system). The findings o f this study lead to six corrective actions to overcome the system's deficiencies. The actions are shown in schematic form in Figure 6.1. Each o f the proposed actions can be seen as a means to change. Nevertheless, each measure, taken inisolation, i s probably insufficient to result in sustainable performance. Taken together and in sequence, according to the initial conditions, they can be powerful levers for improving SUS' performance. These corrective actions are: 1. Develop and introduce organizational arrangements that give the management units increasing levels o f the freedom o f action and authority to make decision on the management o f resources, while being held accountable for performance. The pace o f granting such autonomy must be calibrated with each unit's demonstrated capacity, however, and the capacity o f the central agency (e.g., health secretariat) to monitor and control its performance. 2. Apply mechanisms to strengthen accountability such as management contracts which make the managers focus on specific goals and measurable results. This instrument could serve as a basic mechanism for planning, monitoring and evaluation inboth cases.85 3. Synchronize and align the processes o f planning, budgeting and information management and orient them toward performance (away from the currently predominant focus on procedural compliance and ex-ante control). 4. Consolidate the federal transfers and link increments in financing to improvements in performance, thereby rewarding good performance and penalizing low Performance (given 85 An analysis o f how such instruments can enhance performance, see "Enhancing Performance in Brazil's Health Sector: Lessons from Innovations in the State o f SBo Paul0 and the City o f Curitiba," World Bank (2006), Report No. 35691-BR. 69 the importance of minimum-level health care for all, poor performance would not necessarily mean automatic reductioninfunding).86 5. Establish strong systems of monitoring and evaluationthat aim at improving organizational performance (e.g., by supplyinguseful and clear information for internal management); and 6. Strengthen and professionalize managementcapacity. FIGURE 6.1: CORRECTIVEACTIONTO IMPROVE RESOURCEMANAGEMENT AND SERVICEDELIVERYPERFORMANCE Recommendation1:Developandimplementorganizationalarrangements givingunits greater autonomy and authorityto manageresources SUS' effectiveness in providing high-quality health care ultimately rests on performance at the facility level. A performance orientation can be promoted with granting of greater autonomy and accountability. The system could be based on two guiding principles: (i) autonomous management inthe larger units, principally the large referral hospitals; and (ii) decentralized management inthe smaller units. Autonomous management: Those facilities with an adequate level of (potential) capacity could be given full autonomy over the handling and application of its physical and human resources, having only to follow the SUS healthpolicies and fulfill a set of previously definedtargets, Inrecent years, various models of autonomous management were adopted in various parts of the country, with positive results in a number o f cases, such as that of the Social Organizations and others.87 A similar model could be used for most of the larger health units, mainly the large referral hospitals. 86A recent M O Hpolicy initiative consolidated the 70+ transfers into six block grants. However, it is not clear the extent to which these grants will be linkedto performance (Portaria 698, March 2006). 87For a detailed description of the social organizationmodel and an evaluation o f its performance, see: "In Search of Excellence: Strengthening Hospital Performance inBrazil." (World Bank, 2007: forthcoming). 70 A comparative analysis of these models and their results shouldbe usedto orient the choice of one or more models to be adopted, and also to clearly identify those elements of the model or of its introduction that determined its success. The same model could be explored and tested in regional bodies or health districts instead of individual health units. This would have the advantage o f integrating the health structure of a region or micro-region under the same command and into the same management and budgetary unit. It could also stimulate more effective functioning of the referral and counter-referral mechanisms. Ina way, this idea has already been tested, with the health module concept (in the Metropolitan Health Program o f the 80's) and in the health districts, among others, but in general these experiments did not lead to bodies with managerial and financial autonomy. More recently, the SZo Paulo city government introduced regional autarchies that unite all the existing hospital unitsina particular regionof the city.88 This modality deserves analysis and evaluation to identify its advantages and disadvantages vis-&vis those o f the model of autonomy centered on hospitals (such as the Social Organizations). Decentralized management: Inmany cases, the centralization of decision-making (inpurchasing and contracting, for example) i s the result o f local policy, and not of legal requirements. Current legislation allows, in many cases, the delegation of decision-making over many activities, but this possibility i s not often taken advantage of due to fear of loss of control and misuse of resources given the low managerial capability inmost of the healthunits. A preparatory study could identify the level and kind of decisions that could be delegated to the units, taking maximum advantage of the possibilities offeredby current legislation. Decentralization could turn health units andor regional bodies into budgetary units, endowed with their own budget. Smaller units could be turned into expenditure units or management units with reduced levels of authority and autonomy than for budgetary units,but sufficient to manage a good part of their material resources and all the relevant financial information. The precise identification of the responsibilities to be delegated should be determined based on a specific diagnostic study, taking into account economies of scale in purchasing, its viability in the face o f concrete local conditions, and other factors that could increase the expenseor limit the advantages of decentralized executive power. Recommendation 2: Apply mechanisms to strengthen accountability such as management commitments or contracts that encourage administrators to focus on specific goals and measurable results. The key to the success of autonomous or decentralized management is a management contract, which clearly defines the accountability and powers of the unit, the goals to be attained and the activities to be developed, the resource requirements, clear criteria for the evaluation of the unit's performance, and penalties for the non-fulfillment of objectives. The management contract has beenused mostly for autonomous or private management models. However, it can also be used in models of decentralized management inthe area of direct administration, as long as the units have a sufficient degree of managerial and financial autonomy to be held accountable for their performance. Initially, the focus inusing a management contract should not be on mechanistic interpretation and application of its "contractual" clauses (i.e., reward and punishment). One of the important functions of a management contract i s clarification of organizational goals. This i s most effective if it i s developed through an iterative process of top-down directives and bottom-up suggestions for MunicipalLaw 13.271of4 January 2002. 71 adjustmentdrefinement. Such a process i s likely to ensure not only that the organizational goals are well-adapted to the reality on the groundbut also that the front-line operating unitsare committed to pursuingthose sharedgoals.89 Recommendation 3: Synchronize and align the processes of planning, budgeting and informationmanagement, and orientthemtoward performance. For the concession of greater autonomy to units to produce the hoped-for results, and for unit directors/managers to be able to manage effectively, it is indispensable that they have the technical conditions to make use o f this autonomy and manage the resources available more efficiently, assuming responsibility for the results obtained. For this, (i)the planning and budgeting system must be genuinely decentralized, used at the local level and oriented toward results; (ii)the information systems must supply information oriented toward management and decision-making; and (iii) a standardized system must be established for the measurement of costs in SUS public units. Planning and budget and results: SUS planning and budgeting systems must be reformulated and adapted in the sense of making them effective instruments of local management. Even though the process and its elements are inserted in the greater context of public planning and budgeting, the legislation leaves leeway interms of the structure, format and content of each document. SUS, and the Health Ministry as its coordinator, can therefore undertake adjustments to ensure greater consistency and utility inthe process. For this to happen, first, the focus has to be shifted from the control of processes by higher levels of the organizational hierarchy to management and monitoring of results at the local level. The first and main function of the plan should be planning and programming o f health activities and the management o f the healthunits where these actions take place. The Health Plan and its subsequent evaluation shouldprovide the main content of the management contract. Second, improved linkage and integration i s necessary among the various planning documents - Health Agenda, Health Plan, Multi-year Plan, and Management Reports - and between these and the budget. The complementary nature of these documents as logically sequenced stages in the same continuous process must be emphasized, including the need for one to serve as a basis for the other. It would be worth considering the various documents as stages and successive parts of a single planning instrument, instead of the current modus operandi applying them separately and for different purposes. The methodology, concepts and presentation of each could be made explicit and standardized to facilitate their preparation and allow comparisons and consolidation. Inparticular, it would be highly desirable for the Health Plan, the main planning instrument, include clearly defined targets together with estimates of the resources required to achieve them. These estimates would then serve as a more solid basis for the preparation of the budget. An essential point of this reformulation consists of the prior definition of standardized criteria and performance indicators which would be included inthe Management Report. Recognizing the weakness o f planning as well as the lack of integration among planning instruments, the M O H recently launched a program, known as PLANEJASUS, to strengthen the overall health planning process.g0MOH has created a commission to oversee the process and has 89 For an example o f a successful use o f management commitments in the direct administration, see the case o f performance management in the primary care in the City o f Curitiba in World Bank (2006), Brazil - Enhancing Performance in Brazil's Health Sector: Lessonsfrom Innovations in the State of SCo Paul0 and the City of Curitiba, Report No. 35691-BR. 90 See PortariaNo.25 1, Feb. 6,2006. 72 prepared a manual and training program on health planning. It is too soon to tell whether PLANEJASUS will address the planningshortcomings outlined inthis report. Information Systems: Effective planning and management at the local level depends on information systems capable of supplying pertinent information in a timely manner. Essential modules o f such systems include: information on budgeting and expenditure, information on costs, technical information on production, and information on results, in terms of efficiency, effectiveness and quality. This could be achieved by adapting existing information systems andor by designing or introducing separate modules which are linked to the budgeting system. Two principles should guide this reformulation of the information systems. First, the registering and monitoring of expenditure or other information in a particular unit or program should not necessarily imply linkage of the resource or a reduction in managerial flexibility. Second, the configuration o f the information systems should be oriented toward utilization by local managers and healthunits for their decision-making. The budgetary-accounting system is the only one that i s pre-defined by specific legislation and therefore the least susceptible to changes by SUS and its institutions. It could, however, be adapted or complemented in three ways without major difficulties. First, the classification of programs in the health area itself would have to be reformulated (by programs or projects/activities) in order to give it a more logical, coherent and stable structure. The program structure at its most aggregated level should be based on the essential characteristic of the action or activity, such as the level and type o f treatment given. Another modification would be the preparation of information on expenditure per health unit, presently unavailable. This could be achieved through incorporating greater detail in the budget itself, or by registering the information in an internal module complementary to the health institutions. Various health units that currently do not appear in the budgetary system constitute budgetary units and therefore appeared in the system until a few years ago. This means that the systematic reporting of this information i s technically possible. At the same time, all funding released by the central body to a healthunit i s usually registered (and even if it isn't, it is relatively easy to register it, whether it i s the quantity and value of the payroll, material transferred or services rendered) but not in the budgetary system. This means that the information i s not systematically captured or consolidated and i s lost. The third measure consists of the introduction of a standardized system for measuring costs into a group of public and private SUS units. This would enable not only an estimate of cost by department or service but also an estimate of the cost of specific hospital and outpatient procedures. This requires a rethinking of the traditional approach (of global costing based on cost centers) and the development of a new methodology. In2006the MOHinitiatedaprogramto developacostingmethodologyinSUS facilities, knownat the National Program for Cost Management (PNGC). Implementation will commence in 2007. Although PNGC applies a more traditional, global cost center-approach, it can serve as a building block for a more vigorous costing system. For example, as currently designed, PNGC will not allow for economic costing of specific procedures. Such detailed cost information would be needed to improve service payment mechanisms inSUS. Recommendation 4: Consolidate funding resource-by-resource and link increments in financing to improvement inperformance The modus operandi of the SUS could be simplifiedintwo ways without a major negative effect on the system's structure and roles either in terms of the demands and formalities for the qualification 73 o f states and municipalities, or in terms of the system for fund transfers and payments from the HealthMinistry. The demands and formal requirements for the qualification of states and municipalities to the management modalities of SUS are basically oriented toward compliance with formalities and the development of activities. We recommend that they be greatly reduced or even eliminated. The central idea i s that control over suitable and efficient application of the resources released be made interms ofthe results obtained andnot basedoncompliance withpriorrequirements. An important step was taken recently by the Ministry when it ruled on the automatic qualification in the Expanded Primary Care Management scheme (Gestio da Atenqio Bdsica Ampliada), after a certain time, of all the municipalities currently qualified in modalities prior to the Gestio da Atenqio Bdsica. This kindof simplification and debbureaucratization should be broadened and deepened. Another 'important step was the recent (March, 2006) approval of policy known as the Health Covenants (Pactos de Satide).Unlikeprevious regulations that normatively specified a one-size-fits all delivery structure, the pactos aim to provide sub-national entities flexibility to design and organize their delivery systems to fit the local context. Thepactos specify performance targets for each level of government. Though still a work inprogress, thepactos establish the foundation for a results-based management and budgeting system. However, compliance with performance targets will require development of instruments to enable federal support for and monitoring o f municipal and state performance as well as strengthening state and municipal capacity to plan, budget, and monitor service provision to attain performance targets. The resource transfer mechanisms should also be simplified, and their multiple payment mechanisms consolidated in a few modalities. These modalities, currently detailed at the level of specific programs, could be brought together inbroader categories with which SUS already works: Public Health Services (including Health and Epidemiology Surveillance), Primary Care, Outpatient Treatment of Medium and High Complexity and Hospital Treatment of Medium and High Complexity. These categories should be integrated into the program structure o f budgeting to facilitate monitoring. The actual allocation of resources within these categories would not be linked to specific programs or activities. The evaluation of results obtained through performance indicators could condition continued funding. The above-mentioned Health Covenants policy consolidates these transfers into six block grants, but how these grants will be incorporated with state andmunicipal budgetary structures remains to be seen. The simplifications put forward for the functioning o f SUS would contribute to reducing the administrative costs, making more human resources available for monitoring and evaluation of performance and results, and building appropriate and explicit incentives into the transfer mechanisms. Two incentives could be made explicit and given priority: (i) the reduction of inequalities in the distribution o f access to services, and (ii)boosting efficiency, effectiveness and the quality of assistance. In this sense, the value of federal payments and transfers could be determined as a function of the following criteria: gaps in coverage o f public health, primary care and medium and high complexity care, and the estimated average costs of providing these service^;^' production of these same services; and an incentive associated with results reached in terms of efficiency and quality according to a set of definedindicators. These incentives (additional funding) couldbeproportionalto the improvement seen inthe selected indicators. Inan environment of financing based on performance, there is an incentive for the institutions providing health services to collect, organize and furnish data (results and impacts) to the central 91As is already the case for some programs, this canbebasedon a fixed value per capita adjusted by an indicator o f need (e.g., the already used HumanDevelopment Index or the infant mortality rate). 74 institutions o f the project. Inthis way, another potential advantage of this approach i s that it can lead to improved monitoring and evaluation, particularly when the connection between better performance and transfer o f funding i s clear to the implementingbodies. Recommendation5: Establishrobust monitoring and evaluation systems The success of any approach based on results will depend on continuous monitoring, systematic impact evaluation and feedback to the administrators regarding performance. Results-based monitoring and evaluation seeks to follow progress and measurethe impact of projects, programs or policies. Traditionally, monitoring and evaluation have been weak points of SUS. The focus has tended to be on documenting inputs and expenditure. Monitoring and evaluation can consist of the following items: parameter data collection, definition of performance indicators, systematic collection of data regarding results and impacts, and systematic dissemination of qualitative and quantitative information to managersand decision-makers. Finally, an indispensable component to be developed i s a limited series o f key standardized result indicators on quality, effectiveness and efficiency of service provision. These indicators would allow evaluation and comparison of the performance of health units and programs and would be obligatorily incorporated into the management contracts (Compromissos de Gesta'o) and Management Reports. Recommendation6: Strengthen and professionalize managerial capacity The above strategies and tools taken together will allow each health unit directodmanager to effectively manage the resources available to him and be held accountable for the results obtained. For this to happen, the following i s necessary: (i) the local level and the health units adopt and apply modern management systems and techniques; and (ii) directors and managers are qualified to assume these broadened responsibilities and make good use of the increased autonomy. Modern management techniques: Effective and efficient management of the health units and services - and even more so in the health secretariats - requires management planning tools oriented toward local needs; facilitate permanent monitoring of their resources, their costs and their performance; and enable evaluation of their technical and economic-financial performance. Some of the more useful instruments to be considered include: management o f decentralized personnel; management of purchasesand stocks that facilitates estimation of needs, programming of purchases and better control of stocks; management o f equipment and installations that enables monitoring o f the state of the equipment and its permanent maintenance; evaluation of activity costs and efficiency; evaluation of results in terms of coverage and performance indicators on effectiveness and quality of services. What is needed and appropriate for a given unit will depend on the specific context. The Ministry of Health, possibly inpartnership with the Secretariat of Management of the Ministry of Planning, could promote effective sharing of good practices across the country and from relevant international examples, and serve as a clearing house of information about management modernization. Management capability: A critical mass of qualified managers must be created at the health secretariat and healthunit level, through hiring of new professionals and training of local managers in modem and proactive techniques of management and evaluation. Hiring and retention of qualified management personnel requires human resource policies that are competitive with the private sector in terms of remuneration and benefits. In a gradual and piecemeal manner, this has been happening at the federal level and in various state and municipal health secretariats, but the movement needs to be broadened and accelerated. Two levels of capacity-building come to the 75 fore: the decision-maker level, oriented toward directors or managers; and the technical level, oriented toward professionals who are responsible for planning, management and monitoring activities. The former should be able to analyze and interpret indicators of costs, efficiency and quality, drawing conclusions and making management decisions based on the analysis. The latter should be able to apply analysis and evaluation techniques, organize data and calculate indicators. A large-scale training program should therefore be developed and applied to take account of these two levels. 76 ANNEX: DESIGNAND METHODOLOGYOF THE STUDY REFERENCEFRAMEWORK The financial resources used in the production o f health services - "spending on health" - i s a central and essential element o f any health system, since the funds enable the mobilization (by acquisition or production) o f the inputsthat are needed for delivering the relevant services and their allocation to different purposes (health programs or activities). When financial resources are in short supply or poorly utilized, the resulting healthcare i s bound to be inadequate (affecting quality and effectiveness) and/or making the costs o f the same unnecessarily high (effects on efficiency). The structure and allocation o f spending on health, the financial flows which arise within the context o f the health system and the ways in which o f these resources are applied significantly affect outcomes within the system. In this respect, one could refer to "quality" o f health expenditures as the single feature o f a given system that can provide the best result possible. This occurs when: 1. resources are allocated in an efficient way among the various inputs (allocative inefficiency); 2. resources are used inthe best way possible, with minimumwaste, slippage or losses; 3. resources produce the best possible quantity o f health service in return for a given level o f expenditure (technical efficiency); 4. resources produce the desired quality level; 5. best impact/effectiveness possible i s obtained inthe light o f the resources available. The quality o f expenditure as defined above is determined by a number o f factors such as indicated inFigure A.1below: the legal framework that governs the use o f resources and management o f the health units through formal planning and budgetary systems; the relationship between the different levels o f government and between these and the executing/provider units o f the health services; the planning and budget system and the financial flows determined by it; the degree o f autonomy and responsibility at local level; the administrativepractices pursued inthe executingunits. Assessing the quality o f public health expenditure (i-e., SUS spending) therefore requires following the financial flows in their different phases o f the process o f financing and delivering health services. This tracking procedure consists o f the following: 1. analyzing the planning and budget system which defines the allocation and use o f resources within the context o fthe SUS; 2. mapping the financial flows between the different levels o f government and between the central levels and the actual health units; 3. evaluating how these resources are wedapplied inthe executing units o f the health system inthe light ofbudget execution; 4. comparing the resources used with the results achieved in terms o f the quantity o f health services produced, together with their quality and effectiveness. The Public Expenditure Tracking Survey (PETS) methodology, developed by the World Bank, has been applied ina number o f developing countries. This allows tracking o f public expenditures in a given sector in order to assess whether the available resources are being well used. PETS traditionally consists o fthree components: a tracking component which seeks to quantify delays and shortages o f resources inthe planning and budgetary implementation process o f the different levels 77 been applied inCQ tile-spot data, METHODOLOGY The application of PETS inthis study prompted an analysis insix areas: the planning and budget development process; budget execution (including control o f budgetary implementation, renderingof accounts, audit, control and evaluation); management of materials and medical drugs (including the process of purchases acquisition; tendering; stock control; advance and up-front - payments and use of materials); management of equipment and installations; manpowerhman resource management; and production management. Inorder to understand the resource flows within the context of SUS and to beable to track them effectively, data collection was undertaken at four distinct empirical levels: the Ministryof Health (through existing databanks), State Health Secretariats (SES), Municipal Health Secretariats (SMS) and health units (comprising hospitals and outpatient clinics). A strategy for data collection was developed that included in situ consultation and secondary data analysis in an effort to obtain a reliable picture of each type of establishment while retaining the basic thrust of the PETS method as described above. The basic scheme o f the study is outlined in Chapter 1 and specific questions that the study sought to address and analyze for eachtheme are listed as follows: Process Planning and Budget Materials Equipment HR Production Budget execution Management Management Management Management IIDelays I Legislation and regulation II Ministry a Wastage and a StateiMunicipal Health Secretariats Other problems Impact on quality and Hospitals efficiency Outpatient Clinics (a) Planningand budget 0 Methodology and criteria for developingplansandbudget; 0 Criteria for allocation of resources; 0 Delays inapproval of budget and non-availability of resources; 0 Differencesbetween the needfor resources and the approved budget, betweenthe allocations requestedand approved (according to programs/activities and expenditure categories); 0 Inflexibility inthe allocation o f budgets, impeding reallocationof resources accordingto needs; 79 0 Characteristics o f the planning and budgetary process which make financial and managerial control difficult. (b) Budget execution 0 Delays inbudget execution and payment o f suppliers; 0 Differencesbetweenthe budget approved and expenditure completedand the causes for these differences; 0 Differencesbetweenthe available resources and final expenditure o f funds linked to programs or activities; (c) Management of materials 0 Delays in the tendering and purchasing processes and in the delivery o f goods and services; 0 Control o f reception o f goods and services and their quality; 0 Storage and control o f medical drugs and other materials; 0 Write-offs o f drugs and other items on account o f exceeded expiration dates; 0 Recordingand controlling goods supplied cost-free by central levels; 0 Control over up-front payments. (d) Management of equipment and installations 0 State o f repair o f equipment and installations; 0 Equipment installation and maintenance. (e) Personnel management 0 Numbers and allocation o f manpower inresponse to needs; 0 Delays inpayingpersonnel; 0 Absenteeism and non-compliance with working hours; 0 Qualifications inline with activities; 0 Productivity o f technical staff (d) Analysis ofthe impact on efficiency and quality of services 0 Use rates o f professional staff and technical resources; 0 Hospital infection and mortality rates; 0 Activities and medical care interrupted by lack o f drugs and equipment; 0 Average hospital stay-times and bedturnover. SAMPLING The sample selected for the study was designed in order to highlight the regional variations between the health units and at the same time to keep logistical costs to a minimum. For these reasons, a non-randomized sampling in three stages was chosen: first, the sample covered states, second, the municipalities located in those states, and third, health units located within the municipalities. This sampling structure was chosen in order to permit tracking o f the resource flows within a particular state and the cross-referencing of information at the three levels o f the research. Initially, the sample took into account six states with their respective state health secretariats, 18 municipalities and 76 health units (52 hospitals and 24 outpatient clinics). As a result o f data collection being abandoned in one particular municipality as well as ina number o f health units, and given the difficulty o f accessing certain information, the final sample encompassed 17 80 municipalities (Municipal Health Secretariats), 49 hospitals (public and philanthropic), and 20 outpatient clinics (state and municipal). Although the resulting sample reflects the very different circumstances existingwithin SUS, it is too small for each stratum o f unitsand consequently does not allow statistical extrapolationof the results. Inthe samplingexercise, stateswere selectedto representeachofthe six Brazilianmajor regions (for the southeast region two states were included given the population density and a high concentration of health establishments). One of the main criteria for selection was to reflect the diversity in size and different characteristics of the states, municipalities and healthunits. Municipalities were selected on the basis of size. State capitals were included, plus one middle- sized municipality per state (roughly 200,000 inhabitants) and at least one small-sized municipality (of approximately 50,000 inhabitants). The resultingsample of municipalities could be considered reasonably representative of the diverse nature of SUS. The hospitals selectedwere requiredto meet the following requirements: to attend mainly to SUS users, to have a minimum of 50 beds, to possess reasonable information systems and to be broadly representative of SUS as such. Various hospitals were included in the sample that had been included in other recent studies which made it possible to cross-reference and compare information. The proposed distribution focused on public hospitals since the main thrust of the study concerned budget relationships and transfers o f resources. This sample was stratified by size (medium-sized/big and small hospitals) and sphere, in order to try and obtain a sufficient number ofunits of eachtype to produce representative results. Efforts were also made to include hospitals with different characteristics such as those that undertake teaching and research and public hospitals administered under different kinds of management arrangements. COLLECTIONAND PROCESSINGOF DATA Data collection employed three parallel and complementary sources: a structured questionnaire focused on the directors of health secretariatsand units, qualitative interviews with technical staff working in health institutions (12 technical staff and health professionals were interviewed) and an analysis of official reports and other documents. The data collection covered the years from 2001 to 2003, emphasizing in particular 2002. Depending on the type and availability of information, periods were set aside (yeadmonth, etc.) to define more specific questions, thereby reducing the collection times. The qualitative reports ingeneral related to the current year (2003) focused on more recent events and therefore easier to recall. As the maininstrument ofdata collection, a group ofquestionnaires was developed, adaptedfrom the PETS system applied in other countries (mainly Mozambique and Uganda). The basic questionnaire came inthree versions - one for each level and type of researchunit: one for health secretariats, another for hospitals and the final one for outpatient clinics. A first version was drawn up between July and September 2003 and field-tested inOctober the same year. The final modified version resulting from the pilot test was ready in November and fieldwork began in November 2003, lasting through to March 2004. This timeframe was obviously inadequate given the interruptions caused by the end-of-year holidays which interfered significantly with the pace of data collection. The task to adapt the PETS methodology to the Brazilian situation involved a multi-disciplinary team. The adapted instrument neededto take into account existing information systems and to respond to problems with a view to quantifying them and assessing their impact on service delivery. 81 The questionnaires were applied in the course o f interviews with state health secretaries or someone designated by them (normally a professional charged with a specific area with access to the necessary information); municipal health secretaries (or designates); directors of hospitals; and directors of outpatient departments/clinics. Moreover, concurrent side interviews were undertaken with staff from a number of different technical and administrative divisions with the aim of clarifying and amplifying the research findings. Finally, together with the application of the questionnaire, reports and other supporting documents were requested relating to budgets, plans, management reports, etc. Fieldwork was organized on the basis of one team for each state included inthe sample. A field supervisor was designated for each state to coordinate a team o f 2 to 4 interviewers who had the task of covering the units within the targeted state. The supervisor was charged with coordinating the team under hidher control, planning the logistical arrangements for the field research and, once this had been done, to check consistency of data, organize supplementary documentation, draft field reports together with a rendering o f accounts and forward everything to the project coordinating office via electronic medium (for questionnaires) and the postal service. Supervisors and field researchers received guidance concerning the project as well as training to apply the data collection instruments. The internal structure of the instruments was common to all types of units researched (SES and SMS, hospitals and outpatient clinics), although obviously the content of each section i s specific to each type of unit. The basic format of the questionnaire was organized around planning and budget allocation and implementation processes and the main inputs used in health service delivery (i.e., materials and medical drugs, human resources and equipment'installations). The component sections o f the questionnaire were the following: Section A - Information from the secretariats or health units. This section gives the identity details of the units researched, the name of the person responsible for the unit and details about the profile and type o f unit (in the case of hospitals and outpatient clinics, the number of beds and services on offer are included). Section B Budgetary planning and processes. This section examines the budget and - planning process at its different stages, the degree of autonomy in the preparation and implementation stages of the budget, the delays in releasing and applying funds, the differences between the values requested, approved and executed, including the use of the 'up-front' payment/petty cash system. Section C -Purchases, materials and drugs management. This section deals with information regardingthe purchasing and storage systems, including pharmacy. Surveys were done basically to elucidate the physical condition of stocks, delays in bidding processesand the impact of these elements on service delivery. Section D - Equipment and installations. This section examined the equipment estate, covering inter alia the frequency rate of breakdownsbreakages in addition to examining the physical conditions o f installations. Section E Humanresources. Informationwas sought inthe section regarding the staff, - its distribution, qualifications, absenteeismand any failure to comply with working hours. Section F - Hospital and outpatient clinic expenditure. Inthis section data was sought on the expenditure by type and receipts by source, together with an analysis of the service providers and the impact of receipts from SUS on overall expenditure. 82 0 Section G - Hospital and outpatient clinic productivity. Data was collected regardingthe productivity of the units and, wherever possible, performance and quality indicators were calculated. Supplementary documentation requestedincluded: 0 MunicipaYState HealthAgenda (2002-2003); 0 MunicipaYState HealthPlan (2002-2003); 0 Current Multi-Year Plan (referringto health); 0 Budget Guidelines Law (2002-2003); 0 MunicipaVState Health Budget (2002-2003); 0 Documentary evidence of present budget execution (2002 and first half of 2003); 0 MunicipaVState Balance Sheets, Annex 2, 6 (Health section),lO and 11, for 2002; 0 Management Reports (2002). 0 Personnel Allocation Chart 0 Organizationchart of Institution The data retrieved from the questionnaire and the supporting documents were tabulated in a Microsoft Access databank and the quantitative analyses were done in Excel and SPSS. While data was being entered, internal consistency was checked. This consumed a considerable amount of time but helped to reduce the errors on the questionnaire and to fill gaps. Based upon the databank, a number of performance indicators were calculated for the health units researched, principally hospitals. FEATURESOF THE SAMPLE As mentioned above, the sample was based on the non-randomized method but with a view to reflecting the diversity of the situations encountered in SUS. Table A.2 below presents a picture of the population, the management situation of SUS and the network of health units inthe states and municipalities inthe sample. TABLEA.2: CHARACTERISTICSOFTHE STATESANDMUNICIPALITIES SAMPLE INTHE 83 - Ivoti 16.594 GPAB . o 1 3 3 Mato Grosso --- Barra 2.651.335 4 157 9 817 Cuiaba 508.156 GPSM 1 18 63 76 Bugres 29.717 GPAB 2 5 31 32 Rondonopolis 158.391 GPSM 0 7 59 61 The six states - Amazonas, Cear6, Mato Grosso, Rio de Janeiro, Rio Grande do Sul and SBo Paul0 - possess distinct characteristics in terms of population size and installed network, SUS management situation and epidemiological profile. In the majority of them, the State Health Secretariat (SES) benefits from the "Advanced State Management Scheme." Attention should be drawn to the importance of the SES of SBo Paul0 which has a substantial in-house network of hospitals and outpatient units, and to the outpatient network o f the State Health Secretariat o f the State of Amazonas. Municipal Secretariats The 17 municipalities researchedalso have distinct characteristics. Six are state capitals, all with a population of more than 600,000. Three are mediumto large-size municipalities (SBo Gongalo, Pelotas and Sobral) and the rest are small to medium-sized. Fourteen of them are under the full Municipal System Management Scheme (with total responsibility for the existing network) and the other three are inthe Primary Care FullManagement Scheme (responsible for managing only activities at that level). Hospitals O f the 49 hospitals in our sample, 13 (26.5% of the total) are small-sized (< 100 beds), 24 (49%) are medium-sized (between 100 and 249 beds) and 12 (24.5%) are large (250+ beds). This distribution i s different from the reality of the SUS, where hospitals with