Analysis of Department of Health's budget, spending patterns & recommendations: Financial & Fiscal Commission briefing

Meeting report

Briefing on the Department of Health (DoH) by the FFC
Mr Bongani Khumalo, Acting Chairperson and Chief Executive of the FFC, briefed the Committee on financial and fiscal state of the DoH. The FFC was established in line with Section 220 of the Constitution and functioned according to the FFC Act. Its focus was on the equitable division of nationally collected revenue among three spheres of government and other financial and fiscal matters, such as legislation that financially impacted provincial or local government.

The goals of the DoH were aligned with the National Development Plan (NDP). Examples included the raising of life expectancy to 70 years for men and women, reducing child mortality and the improvement of health system effectiveness. However, South Africa’s health outcomes were poor despite spending on par with peer countries.

The presentation outlined health sector outputs from 2009 to 2014. Some of those highlighted were child mortality, which stood at a ratio of 69/1000 in 2009 with a 2014/15 target of 30-45/1000, the mother to child HIV transmission rate of 10% in 2009 with a 2014/15 target of 0-5%, and improved health care financing which resulted in the creation of National Health Insurance (NHI) in 2009 and the NHI policy finalised and implemented in 2014/15.  

The FFC analysed departmental budgets, comparing allocations and performance according to various criteria and looking at nominal versus real growth rates. The budget for health was increased to R33.9 billion for 2014/15 and spread across 6 programmes, each of which were outlined according to increases and decreases in spending from 2013/14 to 2014/15:

Programme 1 - Administration
Spending decreased from R411 million to R399.7 million, with an under expenditure of 10.37% on goods and services.

Programme 2 - NHI, Health Planning and Systems Enablement
Spending increased from R491.9 million to R621.3 million, with a 59% under expenditure because of the slow take off of the NHI indirect grant.

Programme 3 - HIV/AIDs, TB and Maternal and Child Health
Spending increased from R11.029 billion to R13.049 billion, with an under expenditure of 0.7% due to challenges with the distribution of condoms.

Programme 4 - Primary Health Care Services
Spending decreased from R109.4 million to R93.5 million. There was a 12.6% under expenditure due to slow spending on district health information systems.

Programme 5 - Hospitals, Tertiary Health Services and Human Resources Development
Spending increased from R17 911.2 billion to R18 925.8 billion. There was a 1.4% underspending due to incomplete infrastructure projects and orders not received on time, such as laboratories.

Programme 6 – Health Regulation and Compliance Management
Spending increased from R754.1 million to R865.3 million. There was a 4.1% under expenditure due to slow spending on pharmaceuticals and payment of capital assets.

Highlighted in the budget and expenditure analysis by economic classification was 94% of the budget being spent on transfers and subsidies in 2014/15 – a 2% increase from 2013/14. Provinces account for the majority of the spending at 96.6%, with both national and local government on 1.7% each.

The conditional grant analysis suggested overall aggregate spending for health grants for the year 2012/13 stood at about 85%. Reasons for the underspending included poor project management, delays in awarding tenders and in appointing contractors, and delays in procurement processes. The underspending led to the merging of some grants, which is FFC has cautioned against in the past.

The presentation illustrated annual infrastructure spending on the health against over public sector departments over the period from 2010/11 to 2016/17, averaging at 3-4%. The provincial health expenditure trends showed slight underspending in the majority of the provinces, besides a slight overspending in KwaZulu-Natal and Limpopo. Free State had the highest underspending at 2.3%.

Concluding remarks addressed South Africa’s poor health outcomes which were not in line with the UN’s Millennium Development Goals (MDGs), although progress had been made in meeting 2014 targets. Spending across the programmes and on conditional grants was generally good, with exceptions being NHI and infrastructure related grants. Infrastructure spending within health was, on average, one of the slowest. Discrepancies in provincial spending translate into disparities in district funding. The AG’s findings noted poor financial controls and non-compliance on conditional grants, which is not in line with the Division of Revenue Act.

The appendix of the presentation gave examples of past recommendations made by the FFC with regard to the DoH.

Discussion
Dr W James (DA) said he had looked at the municipal responsibilities under the Health Act and there were about 10, including some serious national health insurance functions and surveillance. When the FFC spoke about unfunded mandates, presumably it was handed over to the province at some point but still sits in the legislation. There had been major failures in some municipalities when it came to, for example, dealing with water purity and water contamination. Another function of municipalities under the Health Act stated that they were responsible for collecting data, but there is a 12% underspending in this area so there is a problem. Could the FFC offer an explanation on how this was happening?

Mr H Volmink (DA) referred to the FFC's concluding remarks. They spoke about the fact that spending had been good apart from on NHI. What were some of the challenges in terms of underspending there? Could the FFC elaborate on discrepancies in provincial spending? As for the AG's findings on poor financial control, what kind of rebuttal action was being taken to ensure that those controls were tightened, particularly looking at the role of the accounting officer. Block grants were considered to be potentially unconstitutional. Did this mean ring-fencing a certain amount of money that could only be spent on PHC, for example? Was that what was meant by block funding? Potentially that would result in more efficient outcomes. In terms of the formula used to distribute revenue, there were some problems with basing it largely on the population as it may affect the services delivered. If there was a migrating population from province Y to province X and the budget of X is largely based on the population, there will be an over expenditure. When will that formula be recalculated? In terms of historical expenditure, had there been a move towards a zero-based budgeting approach? Had it been encouraged, and had there been a response?

Mr A Shaik Emam (NFP) acknowledged that the FFC had made many recommendations. However, was there a process in place to monitor these them and ensure something positive is being done? The FFC stated that there was often weak service delivery at a local level because the allocated budget had not filtered down to the lowest level. What was the reason for this problem? Why was it being allocated but translating to delivery on the ground? The FFC came to the Committee with a strategic plan beforehand and, based on that, the budget was approved but things are not happening. There is underspending on one hand and on the other running out of money. What was the problem? How could it be overcome? It was an on-going process and there seemed to be a massive gap from national to local level which was impacting on service delivery on the ground. The infrastructure was a concern - why was there underspending? Appropriations should be doing something about it on a quarterly basis but they only speak in relation to the 2 financial years, so it was a failure and did not seem to work. How can these things be prevented from happening? What was the positive way forward?

Dr P Maesela (ANC) said a lot of the report suggested there was underspending in several areas. Money was scarce so not spending it was a problem. The potential unconstitutionality of block grants was an issue, it was the FFC's duty to provide advice on legislation and it should be straightened out for the common good of health.

Mr I Mosala (ANC) commented that it was difficult to read the various charts in the document because the writing was too small. Could the FFC send it to the Committee Secretary? The presentation showed a decrease in spending on primary health care, but this was on a national not a provincial level. It was in the Committee's interest to see how much of the money was allocated to each of the provinces in addition to the total, and whether there is a decrease because it is where services are actually delivered. The R93.5 million was only at national level but provinces have their own allocations, so a clearer picture is needed on their individual spending.

Mr A Mahlalela (ANC) asked about the implications of a function being transferred. The report the Committee got from the Department of Health (DoH) was the final stage of the conclusion of the transfer. They have got a performance function and no legal status. What exactly does that mean? As to the issue of provincial governance and increasing the allocations to the spending on primary care, in practical terms what does the finalisation of this mean? Were provinces working on the matter, and will a change be seen in the coming financial year? Could the relationship between the office of the health compliance standard and the recommendation be clarified? The presentation stated that the FFC have made recommendations on the development of norms and standards for funding. In the process of making these proposals, to what extent have they been taken into consideration for funding? Was the current funding adequate, or is there still work that needs to be done to improve it? If there is, in which area is it? Taking into consideration all the programmes, is underspending because lack of capacity? Or, for example with programme 5, does expenditure depend on the performance of the provinces? Other programmes that were solely national and also underspending, did that mean the allocations were beyond their capacity to spend? Could the FFC explain the block grant? Why was it unconstitutional and what was the FFC's view in relation to this?

Mr Khumalo addressed the question regarding underspending given the FFC's unfunded mandates. The challenge is the coordination between national, provincial and local government. Local government operates in its own sphere, but the FFC has an advantage in the sense that it interacts with the three spheres at all times. Departments like the DoH might interact with a province, in which case the hope is that the province would interact with local government through intergovernmental arrangements. The 9 functions of local government across the board are a significant challenge and it is an issue not limited to health - the same thing can be said about sports and museums, for example. There are a lot of challenges with lack of leadership at a higher level where these things are coordinated, so there is not a clear line of accountability. There must be interactions between the office of the municipal manager and junior officials from provincial departments on critical issues. Sometimes such critical issues are not given the prominence that they deserve. The Department of Cooperative Governance (DCG) is addressing some of those challenges. Local government sometimes finds itself in a situation where they are seen as failing to do certain things, whereas some of the problems are outside of their control. There are discrepancies across the provinces with spending. The Auditor-General's (AG) approach is pre-emptive in assisting accounting officers to deal with and anticipate issues. Mr Khumalo responds to the findings of the AG by preparing an action plan illustrating how the FFC intends to deal with the issues identified, whether they are related to leadership, financial management or governance, and the makes quarterly checks until the issues are resolved. It requires a lot of dedication and monitoring by the executive authority to make sure challenges are being addressed. There are discussions around what to do about repeat occurrences - the same mistake cannot be made the following year. In some instances, the NT is empowered to take punitive measures against consistent transgressions, especially when it comes to financial matters. In some provinces, like Free State, health is still under administration by the provincial treasury because of consistent transgressions. The constitution gives responsibility to national department's to assist and capacitate provincial ones. The DoH is integrated - if a problem cannot be seen picked up in the first place then there is an issue with the accountability framework. This is why, when dealing with intergovernmental transfers like conditional grants, the accountability of the national accounting officer cannot be underestimated. The problem is that the money is being appropriated to one department but it must be spent elsewhere. The national accounting officer is involved in the prioritisation process regarding where the money is spent. It is a discussion that is part of the division of revenue process - accounting officers that control large grants must be held to account.

A block grant was given to, for example education, to be used for anything. It is discretionary and non-specific, so long as it is used for education purposes. Health outcomes, or education outcomes for example, are compared with the rest of the world and a commitment made to certain objectives. The assumption is that the Minister of Health is in constant communication and cooperation with the rest of the players in the health sector. Chapter 13 of the constitution looks at this division of revenue process and who is responsible. If R100 billion has been allocated to health according to the prioritisation process, the allocations to each province must add up to this amount. When it does not, the Minister must question whether sufficient money is going to health or if the provinces are taking money intended for health and spending it elsewhere. The NT got a legal opinion on this matter which suggested it could be unconstitutional, whilst the FFC's legal opinion suggested otherwise. Regarding the question about when the formula is reviewed, it is long overdue as it is still based on one from pre-2009. There have been public hearings and, within education and health, the FFC have already identified challenges and made recommendations for 2015. There are still on-going discussions between the NT, the FFC and other stakeholders such as the DOH. The Minister of Health came to address the budget council in 2010 and one of the issues raised was the adequacy of health funding given the challenges faced by health in South Africa. The Minister of Finance brought that question to the FFC at its annual meeting to see whether health was underfunded. It is not necessarily a good idea to pump more money in, however, given the current waste within the system. The FFC's recommendations are made to parliament and the Minister is obliged to respond to these in parliament as to how they have been dealt with. These budget process issues must be discussed alongside the fiscal framework, in particular the provincial fiscal framework review. The local government fiscal framework review was finished in 2013.

Another representative from the FFC added that the introduction of conditional grants meant it took time to pick up on the underspending. The money for the grants has been significantly reduced due to underspending and it has consequently affected NHI. There is also an issue with contracting doctors and dividing responsibilities between the district and the provinces.

The Chairperson said the figures from 2009 to 2014 would allow Members to understand and look into these issues. Could the FFC define its relationship with AGSA and the NT?

Mr Khumalo stated that the FFC was an independent institution. Its relationship with the AG is through sharing a parliamentary office called the Office for Institutions Supporting Democracy that deals with Chapter 9 of the constitution and associated bodies, and they compare notes on what they do. The FFC's relationship with the NT is through forums prescribed in legislation. As Chairperson of the FFC, Mr Khumalo sits on the budget council and the secretariat team sits on the technical committee on finance. The FFC's budget comes from the Minister of Finance. The institutions work together in accordance with Chapter 3, but the FFC are an independent constitutional institution.

The Chairperson requested the FFC return to the Committee so Members could make recommendations. There are some areas which need further debate. The FFC talks about public hearings - who attends these? Where do they take place? Could the Committee get the dates? Members are playing an oversight role and so they have the responsibility to attend as they are important.

Mr Khumalo responded that parliamentary committee chairpersons were invited to the FFC's public hearings, and Members would have to rely on them. It would be ideal if all Members of committees could attend.

The Committee discussed the programme for the following term. Mr Volmink said Doctors Without Borders (MSF) were doing a lot of frontline work regarding the ebola crisis. The regional Director had highlighted challenges. Would there be an opportunity for them to make a presentation to the Committee?

The Chairperson agreed that Members would look into the programme.

The meeting was adjourned.