Health financing for universal coverage

How to use available resources in the most efficient and equitable way?

More health for the money

Available resources can be used more efficiently

While the scarcity of funds for health is a constraint everywhere, all countries can do more with existing resources. Inefficiencies can be found in many areas, for example: in the way medicines are purchased and used, in the way hospital admissions are managed, in the way the health worker capacities and motivation are addressed, and in the way the health service mix is realized.

The way that health financing arrangements are organized may also be a source of inefficiency, and certainly, the mechanisms used to pay providers are crucial in setting incentives that influence efficiency (for better or worse) in the use of resources. More generally, there are opportunities for efficiency gains by using information on provider performance and population health needs as the basis for allocating resources to providers. Such “strategic purchasing” mechanisms often involve the use of contracting mechanisms.

Improving health system efficiency increases coverage

All countries can do something, many of them a great deal, to improve the efficiency of their health systems, thereby releasing resources that could be used to increase the level of coverage. Some of these actions would aim to improve efficiency in a particular area of the health system, such as medicines. Others would address the incentives inherent in the health financing system; in particular, how services are purchased and providers paid.

All provider payment mechanisms have strengths and weaknesses, but particular care should be taken with widespread use of untargeted fee-for-service payments, which offer incentives to over-service, particularly for those people who can pay or who are covered from pooled funds. At the other end of the spectrum, sole reliance on rigid line-item budgets creates incentives for under-service and low productivity, while constraining managers from responding flexibly to solve problems.

Strategic approach to resource allocation necessary

All countries can look to improve efficiency by taking a more strategic approach when allocating resources to providers and services by linking such decisions, in whole or in part, to information on either/both the health needs of the population and the performance (cost and quality) of the providers. Reducing fragmentation in the pooling of funds and purchasing of health services can reduce the administrative costs of the system while also enabling creation of a coherent incentive environment aimed at steering health service providers towards greater efficiency.

International development partners can also contribute by helping to develop domestic financing institutions and by reducing the fragmented way their funds are delivered and countries are asked to report on their use. They could also reduce duplication at the global level.


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