Building resilient financing for healthcare infrastructure – lessons for future pandemics (YEL2022)

Date:  17 November 2022

Building resilient financing for healthcare infrastructure – lessons for future pandemics (YEL2022)

Authors: Dr Cynthia Omina Kanda (Kenya, Co-chair), Miyele Kaliwanda (Zambia, Co-chair), Jan Begenat (Germany), Tien-Ching Lee (Taiwan).

Reviewers (YEL Alumni): Sudha Pathak (UAE), Melinda Bemis (USA).

Background

The COVID-19 pandemic proved to be disastrous for the world’s health and economy.1 This is because resources were diverted from provision of essential services towards COVID-19 care. Health financing is one major functional area in the economy disrupted by the pandemic. Financing is one of the six pillars of the health system that facilitates the access of resources, in the right places, without causing catastrophic health expenditure2.

COVID-19 left many questions for healthcare, but one pressing question is how to build a financing model for health systems with the flexibility to react to potential future pandemics while also driving healthcare improvement.

It is therefore necessary to generate evidence from multiple countries in the world to better understand the process of healthcare financing including lessons learnt.

To support this, we will review strategies various countries adopted during the pandemic to support financing of health systems. In addition, provide recommendations on which strategies enable building resilient health systems.

Methods

To start a retrospective case review of literature published from December 2020 to August 2022 was conducted. The area of focus was on strategies that countries have applied to finance the special needs of the COVID-19 pandemic. There were a range of strategies reviewed from those systems who had proactively foreseen, absorbed, adapted to shock and related structural changes, and reduced vulnerability.

The case review aims at identifying key strategies that can be applied to develop a resilient health system and draw lessons to improve the readiness of health systems to respond to future threats.

Case reviews from East and Southern Africa

Almost 40% of the countries in Africa have their total health expenditure at less than the minimal amount of US$ 44 per capita. In many countries in East and Southern Africa, almost 40% of the total health expenditure is through out-of-pocket payments3. This is attributed to difficulties in mobilization and allocation of funds.

In view of this, external funds are critical in supplementing the government funding which was made evident during the COVID-19 pandemic. This called for innovation in managing the effect of the pandemic on financing of supply chain resources. During the pandemic countries in Africa partnered with entities such as the World Bank, the Global Fund, and the International Monetary Fund to get external funding. We decided to look more closely at the funding mechanisms deployed in Kenya and Zambia to further different options.

The COVID-19 pandemic increased the health sector funding requirement in Kenya by 7.9% between Forecast Year 2020/214. In response, the Kenyan government made budgetary reductions in some sectors and increased the spending in others among them healthcare. In addition, to protect the vulnerable and enhance continuity of business, taxes were waivered, and an economic stimulus package was provided.5

The government funding was inadequate calling for other strategies such as establishment of a COVID-19 emergency response fund where funds were raised from private sector individuals and companies through private public partnerships (PPP).6 This promoted sharing of resources and economies of scales in purchasing and testing.[1] In addition, the private sector contributed to provision of funds, delivery of assets, technology, services and capital for development of infrastructure during the pandemic.[2]

Grants and deficit financing also came in handy to help mobilize support from private organizations and donors (Figure 1) .4

Figure 1: Trends in revenue generated, FY2016/17–FY2020/214

Figure 1 illustrates the steady increase in total revenue generated to support the health care systems in Kenya more so in the pandemic years. In addition, the revenue generated from deficit financing from both internal (treasury bills and bonds, the central bank, market) and external debts has been steadily increasing in Kenya since the year 2017 and has proven to have energized economic growth.

In addition, the Kenya Healthcare Federation-COVID-19 Response Team worked with the ministry of health and Kenya Private Sector Alliance to provide a coordinated response. This team determined the capacity of private facilities in the country and supported training of health workers. Furthermore, there was engagement of the third party payers (Social and private insurance schemes as well as corporates) to include COVID-19 as part of the benefits package as this was deemed to be an exclusion.

The two major sources of health financing in Zambia are the government and donors providing 80% of the total health expenditure7. This is an effort towards Universal Health Coverage (UHC) to increase access to quality health care services. In 2020 and 2021, primary health and hospital services were the two largest spending categories taking 85% of the total budget in Zambia (Figure2). However, there is disproportionate budgetary allocation to primary health services at only a third of the budget whereas budget for hospitals services was allocated at 52 %.

Zambia has had the second largest COVID-19 caseload in Southern Africa increasing the mortality and morbidity requiring hospitalization[3]. This exerted more pressure on the country’s stretched health system. The implementation of the 2021 budget in health focused on measures to prevent the pandemic through the procurement of medication and other supplies, including vaccines.8

Figure 2: Composition of health budget by programme, 2020 & 20218

While the shift in spending was necessitated by the response to the pandemic, the reduced spending for primary health services likely posed significant challenges in terms of delivering primary healthcare.

Case reviews from Europe

Almost 73.5% of health financing across European Union countries is financed by government transfers and compulsory social insurance in 2018 (Figure 3)9. The rest of the financing is by direct out of pocket payments and private insurance.10 The mode of financing varies across the countries for instance, 85% of health funding in Sweden and Denmark is covered by the government. In Luxembourg, Germany, Croatia, France, Netherlands, and Slovak Republic three quarters of all health expenditure is financed by compulsory health insurance. The average out of pocket expenditure in European countries stand at 22%.11

Figure 3: Health expenditure by type of financing, 2018 (or nearest year)9

Despite this healthcare financing system, the COVID-19 pandemic revealed weaknesses mostly in countries that are funded by the social health insurance schemes. This required European countries to mobilize funds through health sector and government reserves and contingency funds, reprioritize the budget, increase the contribution rates for the social health insurance, earmarking taxes for the health system and as well as borrowing through grants, loans and private sector. In addition, the coverage policy was adopted to increase access to healthcare services. This addressed the population covered, service coverage and exemption of user charges for COVID-19 related care. In most European countries, the additional costs were partially or totally reimbursed by the state12.

However, one counterproductive measure that was implemented was reduction of expenditure on public health measures derailing efforts towards Universal health coverage.

We decided to look more closely at the funding mechanisms deployed in Germany and Spain to further different options.

Germans’ healthcare spending ranks third at 10% of the GDP. This has enabled 85% of the German population to be insured by statutory insurance, 11% by private insurance while 4% pay through out-of-pocket payments or financial support from other institutions13.

In Germany, while social health insurance, played a role in the pandemic, this was not considered a major player in funding. The regional government became the major decision maker coming up with new laws and regulations and helped define the response plan. This entailed determining COVID-19 reimbursable expenses as well as prioritization COVID-19 care by reducing elective treatment. The reduction of treatment or primary care diseases led to loss of revenues, which were compensated by incentive payments through the Social Health Insurance fund. The resultant impact of this was a deficient in funds contributed by social health insurance fund forcing the government to increase the contributory taxation rate.14

On the other hand, public health funding dominates in Spain by >71% of overall health financing as generated by taxation. In addition, there is a significant rise in out of pocket payments and private insurance accounting for the remainder of the private funding.15

Spain is a country of interest as it was affected by a unique challenge caused by decentralization of management affecting policy implementation and distribution of responsibilities.  This decentralization met the political criteria as opposed to considering management and efficiency’s causing dysfunctions in the health system among them affecting health financing.16

Case reviews of Asia

Health financing in Asia is majority out of pocket with exception of Korea, Japan, Thailand, and Taiwan providing minimal financial risk protection. This is attributed to the large informal sector across most low-income countries of Asia leading to minimal mobilization of funds through tax and health insurance. As done in the previous case studies, the focus will be on Taiwan and Philippines for  a review of the different model of financing and funding mechanisms during the pandemic.

The National Health Insurance(NHI) in Taiwan  is a compulsory government run social health insurance system providing universal (99.9%) coverage17. The benefit package in this system allows for equity in coverage, with cost sharing models designed to promote desired consumer behavior. The funds are raised through premiums 30% by employees, 60% by the employers, and 10% subsidized by the government. Low-income households, inmates and the military get 100% of their premiums paid by the government (Figure 4)18.

Figure 4: The framework for national health insurance19

Taiwan’s NHI system was critical in combating the pandemic of COVID-19 allowing high-accessibility and minimal-copayment. The robust healthcare system in Taiwan protected the citizens and ensured social stability during the COVID-19 pandemic. In addition, the Taiwan government provided an economic stimulus package to supplement the NHI scheme to support the efforts towards fighting the pandemic. In view of the potential for strain on the healthcare system, Taiwan went further and focused on primary health care strategies to reduce transmission to avoid overwhelming its health system.

On the other hand, the Philippines have a mixed source of financing with 60% being funded by private sources through user fees and 40% by public taxation. Below is an illustration of the various modes of financing(Figure 5) 20

Figure 5: Current health expenditure by the financing agent, in %, 2014-2019

To achieve universal healthcare, Phil health was mandated with funding individual based services while the department of health focused on population-based health services. The pandemic necessitated a change in the response by Phil health. This was done by improving financial access for COVID-19 care and providing enhanced benefits packages for all. This was made possible through central coordination of donated resources to improve economies of scale.21

Lessons learnt

COVID-19 resulted in a significant shift in healthcare financing during the pandemic.  The pandemic affected not just the amount of money, but also the sources and expenditures as many countries experienced a fast decline in government revenues due to the economic impact of lockdowns. Through the review of different case studies across different countries, the findings suggest the following strategies were most impactful in supporting the finances for health systems during the pandemic and offer different methods to help build models for future pandemics that may occur

  1. It is notable that in all countries, there was prioritization of allocation of resources to Health financing.
  2. Reallocation of funds and raising public funds through mechanisms such as bonds, tax and mandatory contributory schemes are an effective way of health financing. Countries that had better financed health systems before the pandemic were better placed in addressing the healthcare costs.
  3. Countries should address the flow of funds through the health system to increase the efficiency of procurement, procure additional services, and ensure that care providers are able to survive the financial disruption. This could be done by changing the purchasing and payment systems to direct resources to where they were needed most. Also, compensating healthcare providers for unpredictable costs or lost revenue during the pandemic enables them to be sustainable through fee for service payments, reimbursements of capital spending and compensation for losses in income generated.
  4. Health systems should embrace new needs while sustaining essential services. These changes are done to provide access to quality health services and protect individuals from catastrophic financial risks by reviewing the coverage policy through extending of the breath, scope of benefits, cost or population covered.

Additionally, the case studies revealed countries with better health system financing in advance of the pandemic, such as Germany and Taiwan, had an easier time adjusting to the changes brought forth during the pandemic. However, countries with weaker financial systems such as Zambia and Kenya had a tougher time and had to source for alternative sources of financing to substitute what was in place. This strategy is not sustainable and is an important lesson learned to ensure future financial flexibility in planning for the health systems.

Recommendations

Each health system started at a different point when the pandemic impacted them and all had varying capacities of financing. The COVID-19 pandemic forced countries and health care systems to make quick decisions in their response. To improve the resilience of health services for future pandemics, the strategies below are recommended for health financing.

First to provide sufficient and stable funds through adequate allocations of the government budget towards healthcare activities. This would reduce the need for alternative sourcing of funding as it is an unreliable and inconsistent source of financing for countries intending to achieve Universal health coverage.

In addition, adapting the procurement, purchasing and payment systems to meet changing needs and balancing economic incentives enables the flowing funds through the health system. Capitation system could be an idea to get health system more resilient as it provides incentives for preventive measures.

Finally improving access to healthcare services towards supporting universal health coverage by improvement of the range and costing of services with keen interest to the vulnerable. This includes focus on public health and prevention strategies as well as expanding primary health care systems to ensure easy access to health care services.

In conclusion, governments have to balance between effectively responding to a pandemic and ensuring the continuity of provision of essential health services. Sufficient domestic resource allocation, use of big data and stakeholder support are important in bridging the financing gap. This should be done through formulation and implementation of better health policies and reforms on health financing.

References

  1. Organización Mundial de la salud – OMS. WHO Coronavirus Disease (COVID-19) Dashboard. World Health Organization. Published 2020. Accessed July 15, 2020. https://covid19.who.int/
  2. World Health Organization. Strengthening nursing and midwifery. Midwifery. 2003;19(3):245. Accessed November 5, 2022. www.iniscommunication.com
  3. Musango L, Elovainio R, Nabyonga J, Toure B. The state of health financing in the African Region. WHO, AHO. African Heal Monit. 2013;(16):9-14. Accessed October 20, 2022. https://www.afro.who.int/sites/default/files/2017-06/state-of-health-financing-afro.pdf
  4. Owino E. Domestic financial flows in Kenya before and during Covid-19. 2021;(July). Accessed October 20, 2022. https://devinit.org/resources/domestic-financial-flows-kenya-covid-19/
  5. Ng’ang’a TK. Impact of COVID-19 Measures on Kenya’s Health System. Published online 2021. Accessed August 17, 2022. https://www.researchgate.net/publication/355586492_Impact_of_COVID-19_Measures_on_Kenya’s_Health_System
  6. van Duijn S, Barsosio HC, Omollo M, et al. Public-private partnership to strengthening COVID-19 response in Kisumu, Kenya. medRxiv. Published online 2021:2021.08.31.21262891. doi:10.1101/2021.08.31.21262891
  7. Masiye F, Chansa C. Health Financing in Zambia.; 2019. doi:10.1596/31786
  8. Mr Shebo Nalishebo. Health Budget Brief: Budgeting for health during a pandemic. UNICEF. Published 2021. Accessed October 21, 2022. https://www.unicef.org/zambia/media/2491/file/Zambia-budget-brief-2020-2021-health.pdf
  9. Organisation for Economic Co-operation and Development (OECD). Health at a Glance 2021. OECD; 2021. doi:10.1787/AE3016B9-EN
  10. Webb E, Hernández-Quevedo C, Williams G, Scarpetti G, Reed S, Panteli D. Providing health services effectively during the first wave of COVID-19: A cross-country comparison on planning services, managing cases, and maintaining essential services. Health Policy. 2022;126(5):382. doi:10.1016/J.HEALTHPOL.2021.04.016
  11. The World Bank. “Out-of-pocket expenditure (% of current health expenditure) – Indonesia.” The World Bank Data. Published 2022. Accessed October 20, 2022. https://data.worldbank.org/indicator/SH.XPD.OOPC.CH.ZS?locations=EU
  12. Webb E, Hernández-Quevedo C, Williams G, Scarpetti G, Reed S, Panteli D. Providing health services effectively during the first wave of COVID-19: A cross-country comparison on planning services, managing cases, and maintaining essential services. Health Policy. 2022;126(5):382. doi:10.1016/J.HEALTHPOL.2021.04.016
  13. Mc Vay D. Canada: Health System Financing – World Health Systems Facts. Published 2021. Accessed October 20, 2022. https://healthsystemsfacts.org/national-health-systems/bismarck-model/germany/germany-health-system-financing/
  14. Schmidt AE, Merkur S, Haindl A, et al. Tackling the COVID-19 pandemic: Initial responses in 2020 in selected social health insurance countries in Europe. Health Policy (New York). 2022;126(5):476-484. doi:10.1016/J.HEALTHPOL.2021.09.011
  15. Spain: Health System Financing – World Health Systems Facts. Accessed November 7, 2022. https://healthsystemsfacts.org/spain/spain-health-system-financing/
  16. Peña-Ramos JA, Recuero-López F, Sánchez-Bayón A, Sastre FJ. Evaluation of Spanish Health System during the COVID-19 Pandemic: Accountability and Wellbeing Results. Int J Environ Res Public Health. 2021;18(24):12907. doi:10.3390/IJERPH182412907
  17. Han E, Chiou ST, Mckee M, Legido-Quigley H. The resilience of Taiwan’s health system to address the COVID-19 pandemic. EClinicalMedicine. 2020;24:100437. doi:10.1016/j.eclinm.2020.100437
  18. Dr. Shih-Chung Chen. OPINION – Taiwan’s COVID-19 containment strategy utilizing innovative technology, universal health coverage. Published 2022. Accessed October 20, 2022. https://www.aa.com.tr/en/analysis/opinion-taiwan-s-covid-19-containment-strategy-utilizing-innovative-technology-universal-health-coverage/2585824#
  19. Lee PC, Lee PC. Introduction to the National Health Insurance of Taiwan. Digit Heal Care Taiwan. Published online 2022:1-15. doi:10.1007/978-3-031-05160-9_1
  20. SCOPING REPORT Financing Primary Health Care in the Philippines LEIZEL P LAGRADA-ROMBAUA, JOYCE ENCLUNA, EMMANUEL GLORIA 2021.
  21. Coherent health financing for the COVID-19 response: a perspective from the Philippines – ThinkWell. Accessed November 7, 2022. https://thinkwell.global/health-financing-for-the-covid-19-response-a-perspective-from-the-philippines

Written by:

Katherine Bennett

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