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By Nirmala Ravishankar (ThinkWell), Edwine Barasa (KEMRI Wellcome Trust Research Programme), Sophie Witter (Queen Margaret University), Angellah Nakyanzi (ThinkWell), and Joseph Kutzin (WHO)

There is a growing consensus among health financing specialists that low- and middle-income countries (LMICs) should ensure that government-owned health facilities receive some public funding directly and have the flexibility to spend it. The term direct facility financing (DFF) has come to be associated with such reforms that have drawn support from the Lancet Global Health Commission on financing primary health care and garnered attention from both donors[1] and country governments.[2]

Even as the DFF conversation gains momentum, it is critical that lessons from performance-based financing (PBF) reforms that were tested widely in many LMICs are not lost. At a conceptual level, PBF and DFF share many common attributes, and the use of different labels can be confusing. The translation of these concepts into actual practice has been different, however. And the discourse around PBF projects offers a vital lesson for DFF reforms: the importance of a systems approach.

The history of facility financing arrangements

Historically, LMIC governments used input-based budgeting to pay for health care at public facilities. Over time, stagnating health budgets, low execution rates, and leakage resulted in few funds reaching frontline facilities. Encouraged by international agencies in the 1980s, many LMICs introduced user charges and payments for drugs along with changes enabling facility managers to use these funds. While the fees gave facilities some flexible financing, they became a financial barrier to access for the poor. This set the stage for facility financing mechanisms geared towards removing user fees while maintaining their productivity incentives and the facility management autonomy that accompanied them.

The most popular were reforms bearing the PBF labelRwanda was the first among LMICs to adopt PBF country wide. Successful advocacy and donor funding resulted in the approach spreading to 36 LMICs. Reforms bearing the DFF name were less numerous. Kenya and Papua New Guinea were among the early adopters of DFF, and a few countries including Nigeria, Cameroon, and Zambia introduced a package of interventions labelled DFF as a “policy counterfactual” to PBF. In recent years, DFF has come to be closely associated with Tanzania, which scaled up DFF nationally.

Conceptual similarities

PBF and DFF share many characteristics. They both involve public funds flowing to facilities to cover some operating costs, even as the government directly pays for the bulk of core costs, such as staff salaries. Both are complex reforms that include other interventions like increased facility autonomy and community engagement.

As noted above, several countries tested PBF and DFF side by side. The key difference was that payments under PBF were linked to performance measured using output and quality indicators and in many cases facilities could use some of it to pay bonuses to staff. Studies found that they delivered comparable improvements, but DFF costed less and was easier to implement. The two approaches are not dichotomous, however; DFF with its emphasis on funds flows and operational autonomy can be foundational, while performance incentives à la PBF could be worked into the payments eventually.

An important practical difference

More has been written about PBF, and a key part of the discourse has focused on how PBF reforms have been implemented. Its proponents characterized PBF as a system-wide reform. Its critics feel PBF reforms have been “donor-driven fads” implemented in “project mode” and have fallen short of this promise.

For example, PBF schemes relied on new structures to verify results instead of strengthening existing information systems, and the payments were not aligned with public financial management (PFM) rules. Many PBF pilots were narrow, focusing on select services based on the donor funding them. These characteristics increased costs and hurt government buy-in, making the schemes unsustainable.

The way forward with facility financing reforms

A recent brief by the World Health Organization and the World Bank recommends that DFF be viewed as a systems reform instead of a new project or scheme. We agree but worry that old habits die hard. So, as the wind gathers behind the DFF sail, we offer three concrete recommendations:

  1. DFF can take many forms. The point is not to introduce a new scheme or provider payment method called DFF. Instead, the goal should be to analyze existing facility financing arrangements and find ways to strengthen desirable health financing attributes associated with DFF, such as funds for operations flowing directly to facilities and facility managers having the authority to manage these funds. Indeed, in some contexts, this may entail transitioning existing PBF projects.
  2. DFF must happen within the system. The reform being integrated into PFM rules, governance arrangements, and information platforms is inherent to DFF and critical for ensuring its sustainability.
  3. DFF reforms should target a comprehensive range of services. While it is nonsensical to have a parallel DFF platform to channel only donor funds for vertical programs, DFF can support the harmonization of donor inflows with domestic public budget financing for health. This can unify payments to offer a coherent incentive environment for providers.

Following these suggestions will ensure that DFF is not viewed—negatively or positively—as the new silver bullet, and instead becomes the engine for meaningful and lasting health reform.

[1] USAID, Global Fund, GAVI, and the World Bank are supporting countries implement DFF reforms.

[2] Some co-authors of this article have been participating in such discussions.


Read the original blog post on the BMJ Global Health blog here.

On December 7, 2023, we explored how the Philippines is reforming its health financing to purchase integrated health services from networks of providers.

Watch the recording

Integration of care is defined by the World Health Organization as a means “to ensure everybody has access to a continuum of care that is responsive, coordinated and in line with people’s needs throughout their life.” Globally, there is much enthusiasm towards integrating care to further health system goals. If based on strong primary care and public health functions, integrated care can contribute to improved access, greater equity and efficiency in service delivery, and better quality of care and user experience, ultimately leading to health gains and client satisfaction.

One intervention towards integrating health services is the formation of service delivery networks or networks of care. Many countries, including China, Singapore, and the United Kingdom, have reorganized service delivery based on networks. How these networks are financed—or how they are situated within the country’s purchasing arrangements to use health financing terminology—is a critical factor determining their success.

The Philippines is one such country that is reforming its health system to ensure the integration of health services. In 2019, the country passed a landmark UHC Law introducing structural and functional changes in health financing, service delivery, and governance. The Law requires provinces and cities—referred to as local government units (LGUs)—to integrate health facilities into health care provider networks (HCPNs). The networks will constitute province- or city-wide health systems (PCWHS), each with a functional governance mechanism through an expanded health board and a referral process. The Law also mandates that PhilHealth payments and other revenue for facilities in an HCPN flow into a Special Health Fund maintained by the PCWHS to encourage this integrated approach. The country is piloting this approach in select implementation sites, which will be assessed in 2025, leading to recommendations for integrating all local health systems.

In this Counterpoint, we talked with key experts from the Philippines about these reforms. We heard about how the process of integration is unfolding, explored the opportunities and challenges of purchasing services from HCPNs, and received insights into how the implementation of these ambitious and far-reaching reforms can be improved. We also discussed lessons from the Philippines’ experience that other LMICs can leverage as they develop and execute strategies to ensure integrated health services.

Pura Angela Co, ThinkWell’s Philippines Country Director, hosted the webinar featuring the following specialists:

  1. Laurentiu Stan, an international development professional and current Chief of Party of USAID’s ReachHealth project, will share their experience in supporting the implementation of service delivery networks in the Philippines.
  2. Eduardo Banzon, a regional health financing expert from the Asian Development Bank, will share his perspective on how the Philippines is purchasing integrated health services compared to other regional experiences.
  3. Leslie Ann Luces, the Provincial Health Officer of Aklan will share opportunities and challenges for LGUs to ensure the delivery of integrated health services.

Some of the questions posed were as follows:

  1. How is the Philippines trying to achieve integrated health services through the financing reforms mandated in the UHC Law?
  2. What are the opportunities and challenges to purchase services from HCPNS with the UHC Law?
  3. What has been the progress in terms of implementing these reforms?
  4. What are the lessons and recommendations for its improved implementation?
  5. What can other countries learn from the Philippine experience?

Date and time: December 7, 2023, 7-8:30 PM Manila time (6:00 AM-ET)

Counterpoint is ThinkWell’s signature series of webinars, which offers a platform for free and frank debate about questions related to health system strengthening. Through these honest discussions, we strive to challenge dominant paradigms and scrutinize new trends to ascertain their merit.