Provincial Health Budgets & the Need for Equity: briefing by UCT Health Economics Unit

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06 March 2001
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Meeting report


6 March 2001

Chairperson: Dr A S Nkomo

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Power point presentation by Health Economics Unit, UCT

The Director of the UCT Health Economics Unit analysed the health budget in terms of equity, particularly on the allocation of funds to the provinces. She raised concerns about the formula used to allocate funds and the conditional grants given to central hospitals. She saw transparency, wider communication and clear lines of responsibility and accountability as central to achieving an equitable health budget.


Ms Di McIntyre, Health Economics Unit Director (Department of Public Health and Primary Health Care, University of Cape Town) presented on the broader issues surrounding the Department of Health budget. The research she presented had been done in conjunction with the University of the Witwatersrand.

She noted that a public report on the issues of conditional grants and local government finances would be published on 30 April 2001 for the National Treasury.

Ms McIntyre said there is an average annual increase of 7.3% on the national health budget allocation, which in her view, just keeps pace with inflation. There is in fact a declining percentage share on the budget in per capita terms. This is due to over-all population growth and an increasing dependency on public health services (declining medical scheme membership and employment levels).

However, there is optimism around new policies being introduced, such as the provision of Neverapine to pregnant women who are infected with HIV. Ms McIntyre did point out that there were not any available resources to support currently depleted ones.

On the allocation to the provinces, Ms McIntyre was concerned that the provincial health budget is critically dependent on the total provincial budget. The National Treasury had devised the formula for the allocation of funds to the provinces. There had been proposals to change the allocation formula. For example the Financial and Fiscal Commission had proposed a different formula but it was not accepted. Decisions on the allocation of funds to all provinces are made in the Budget Council and are then taken to Parliament as a fait accompli. In this way, the key role players are not consulted.

Ms McIntyre said the current formula used by the National Treasury to allocate provincial global budgets serves seven different components: Education (41%), Health (19%), Welfare (17%), Basic (7%); Institutional (5%), Economic activity (8%); Backlog (3%).

Ms McIntyre said provinces devise what percentage is spent on different services. In terms of the health component of the formula, she emphasised the fact that health services are deemed to support everyone who does not have medical coverage and that each of these people are deemed to visit public hospitals four times a year but this also includes medical scheme members. The question that needs to be asked is should people on medical schemes be included in the budget formula for public hospitals in provinces?

Provincial data on medical scheme membership last year underestimated the number of people on scheme membership by 2 million. In light of this error, the Health Economics Unit therefore suggests it should be made a requirement that medical schemes submit provincial data to the Medical Schemes Council.

The Director also spoke on what she termed the "controversial" components of budget allocations to provinces. Starting with the Economic Activities component, she said this grossly favours urban provinces because it allocates resources to provinces according to their contribution to economic activity. Therefore, they will get back 50% of what they contribute to the economy. With regard to the Backlog component, she said that this was based on infrastructural needs rather than human development backlogs and was insufficiently weighted at 3%.

National Treasury’s rationale for this formula:
- it is a proxy for provincial tax revenue. However the FFC recommended equalising for differential provincial tax revenue.
- it seeks to maintain infrastructure for economic activity (such as maintenance of roads)
- the underlying concern for financial management in rural provinces.

Ms McIntyre advocated coming up with an alternative perspective, in terms of equity, so that the process of weighting should heavily favour the most deprived areas with the greatest human development backlogs. To drive her point home, she quoted an unidentified author, who said, "It is not enough to ensure that all people are treated the same if starting points are unequal. Instead, one might need to treat different groups and individuals differently to ensure their finishing points are equal".

Ms McIntyre briefly talked about the "distribution of deprivation", these include unemployment, child abuse, access to water, poverty, disease. These are combined into a single index of deprivation. She said these figures show the Eastern Cape at 40% as the most deprived province. The Western Cape and Gauteng are the least deprived provinces in South Africa.

Eastern Cape is one of the most financially challenged provinces in South Africa. This province and others like it get less funding than they require to meet their needs. Financially struggling provinces should get more funding for human development and their budgets should not be reduced as they will be unable to cope with further reductions. However, provinces such as the Western Cape and Gauteng, can survive with reductions to their budget because they have revenue-creating projects such as toll gates and tunnels. In the Eastern Cape, a toll gate may cause social difficulties since many people will be unable to pay the tolls. Ms McIntyre emphasised that the resource allocation formula is constructed needs to change.

She said much needs to be done on human resources capacity building and better financial management in provinces where there is gross mismanagement of funds. She felt that the pace of change for provincial allocations which encouraged restructuring and reduction in funds from the state should not be rushed; instead, it should be a phased-in process. Such a process should be committed to giving financial support to financially stricken provinces over time.

When referring to sharing the health budget fairly amongst the provinces, Ms McIntyre said there should be a variation amongst provinces in terms of health needs. She said at the moment the allocation of health resources depends heavily on the fortunes of the provincial budget as a whole and this is problematic.

The concern should be on provinces which are under-resourced and where health is not awarded sufficient priority. There should also be a move to improve the norms and standards of health institutions all over South Africa.

Conditional grants are allocated for:
- Central hospitals
- Health profession training and Research
- Redistribution of tertiary service
- Hospital rehabilitation programs
- Integration Nutrition Program

Gauteng receives the largest grants of all the provinces, followed by Kwa Zulu-Natal and the Free State. The training grants are predominantly awarded to Gauteng and the Western Cape. Nutrition grants have gone mainly to the Eastern Cape and are for food distributed to primary schools. Of the grants awarded to central hospitals, 25% is allocated for training and 75% is expected to cover services in each hospital. The concern here is that grants are awarded to health institutions with highly specialized services such as heart transplants and such services are only found in certain provinces. At present there is a move to revise the hospital grants in order to rationalise the provision of highly specialised services (HSS).

There are two concerns about the training and research grant:
- most of the money goes to academic and central hospitals
- the allocation is not based on the cost of actual training.
Ms McIntyre suggested that, for future planning, resources should be used for training at all levels of care (ie the primary health care approach). The training should be costed properly and funded accordingly.

Conditions for the allocation of grants are require that a hospital submit a business plan and there should be no discrimination between residents and non-residents of province. However she said there is no previous guidance on how to prepare business plans. Hospitals should have a good directorate management capacity. On 30 April 2001 more of these conditions will be specified in the published report.

Local government financing is based on estimated expenditure requirements to deliver basic services (electricity, water, sanitation and refuse removals) to poor residents. Health is not included because they need first to resolve the issue of the relative responsibilities of the province and local government for health. The status quo is that money went to the hospitals via the provincial health budget and this has led to local government allocating less money from its revenue. There is confusion with regard to accountability.

Ms McIntyre concluded:
- there needs to be greater transparency and communication about the formula used and the conditional grants.
- there should be a promotion of equity in the allocation of global budgets to provinces.
- capacity must be strengthened in poor provinces so that they can use resources appropriately
- there should be there should be constant monitoring and evaluation.

Dr R Rabinowitz (IFP) noted that it is an open secret that there are not any funds to make resources available to struggling hospitals. She asked where should the shift be made to make these resources available? In the past this was dealt with by laying off staff members.

Ms McIntyre replied that no decision has been taken on where the shift has to be made. However personnel is one of the biggest expenditure items health has to deal with.

Ms F Marshoff (ANC) asked why the FFC recommendations were not accepted if it was so obvious that there needed to be a revision of the formula used?

Ms McIntyre replied that the actual battle was around allocation of the global budget. This leads to some provinces getting more funds compared to others.

Dr Nkomo asked how much was spent on training a single doctor and how much is the overall cost of training all doctors?

Ms McIntyre was unable to give a precise answer to this question.

Ms Marshoff pointed out that once provinces get the allocated budget, national government cannot stipulate to them how they should spend that money.

Dr Rabinowitz asked for the amount of the conditional grant allocated to AIDS. She noted that monitoring has long been a problem because of a lack of financial management capacity. She asked what Ms McIntyre thinks should be done?

Ms McIntyre replied that R125 million was allocated for HIV/AIDS this year. On capacity she confessed that this is quite a huge problem to deal with and there are not any easy answers. However she thought substantial thought has to be taken on how the resources are used. Currently provinces are not made aware early enough about the amount of money they would be getting from central government. She believed that government should make this information available to provinces so that they can plan ahead.

Dr Nkomo said funds from the European Union (EU) had been received to build the management capacity of the Department of Health directorate and subsequently consultants had been hired to help the department achieve this. He asked if she thought there would be any improvement in management?

Ms McIntyre said it was actually hard at this present moment to see the impact of the consultants.

Ms Marshoff asked what level of transparency would be appropriate for allocation of funds. Secondly, is the right research being done on the allocation of funds?

Ms McIntyre answered that there is a debate taking place at the moment on the level of transparency required. On the second question she said they are currently looking at the pros and cons of allocation and accountability. In her view most debates on the matter took place on a political level and this was a concern because not everyone is involved.

Dr Nkomo thanked the presenters from UCT saying that information such as this that is important to society should not be made the monopoly of intellectuals.

[The Chairperson of the Portfolio Committee raised his concern about the number of committee members who attended the meeting. The members of the press largely out numbered the committee members present who were only five].


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