Q&A: How to improve dialogue between health and finance ministries

[Editor’s Note: Midori de Habich, the former Minister of Health of Peru, participated in two workshops led by Results for Development (R4D) and USAID’s Health Finance and Governance (HFG) Project. At both events, she offered guidance to health and finance government representatives in how to increase government funding for health.

To build on these practical lessons and share them here more widely, Marty Makinen, Ph.D., R4D’s executive vice president for health, interviewed Ms. de Habich. In this conversation, she shares tips on how to improve dialogues between health and finance ministries to encourage more efficient and effective use of resources for health and make the case for more.]

Marty: Thank you for joining me for this interview, Ms. de Habich. I’ve been brushing up on some of your previous work over the years in public health and economics. Maybe we can start there?

In the late 1980s — before you were Minister of Health — you worked at the Central Bank in Peru, during one of the most severe economic crises in the country. I understand the structural adjustment program and drastic budget cuts that followed had a disproportionate impact on the functioning of the health sector and its ability to protect the Peruvian people from the impoverishing effects of the crisis. As an economist and an advisor to the Ministry of Health at the time — working to protect public funding for health — what were some of the lessons learned from that experience?

Midori: During that time, I was asked to conduct several studies regarding the distributional impact of public expenditure on health. There were many lessons learned, but I would highlight three, which are still applicable to many countries and situations (notwithstanding the progress made in the last 20 years):

First, there is a need to purposefully deal with communications and understanding of the basic rationales and needs on each side of the table. This means on the side of the Ministry of Finance considering perspectives on why to invest in health and how use of public funds translates to better health outcomes. From the Ministry of Health, this means considering perspectives on economic policy and concerns from the finance side regarding need to make stronger, more frequent cases for investment in health. Let´s start by foregoing professional jargon, there’s a lot of it on both sides.

Second, the urgency to consider and develop counter-cyclical fiscal policies which could provide some protection and stability to health (and key social spending) in times of economic slowdown. This of course is only possible in the medium and long term. Sound and disciplined fiscal policies are good for our health!

Finally, the health sector needs to reinforce equity objectives as well as take allocative and technical efficiency issues seriously, if the case for more resources for health is to be made successfully to heads of state and ministers of finance. It is not enough to advocate for more money, however loudly it is done, if equity and efficiency issues are not consciously tackled.

Marty: Though it’s not a new concept, domestic resource mobilization has become a buzzword in global health and development. Why is domestic resource mobilization for health becoming so important, and what are some of the steps Peru has taken to ensure health gets its fair share of public revenues?

Midori: Domestic resource mobilization is not a new concept. It has been in the center of the discussion for a long time and will remain so. However, the way this has been approached has varied substantially. It is important to highlight that Peru started producing National Health Accounts in 1995, so it is possible to distinguish patterns of health financing and spending over a long period.

Following the economic crisis and the drastic budget cuts in the early 1990s, Peru’s emphasis was on levying user fees in public facilities, particularly in hospitals. As it is well acknowledged now, this reliance on out-of-pocket expenditure — at the point of service — proved to have a negative impact by reinforcing the economic barrier to access to needed services by poor households. Thus, affecting the overall equity of the system.

It also had an indirect adverse effect, which was less analyzed, on the distribution of health personnel. As the revenue collection through user fees was greater in the more affluent urban areas and in the hospital level and as these resources eventually translated into payments to the personnel, a distortion was created favoring salaries paid in facilities in the urban areas and the hospital level vis-a-vis the rural and primary level of care. Thus, affecting the overall allocative efficiency of the system.

So, the discussion on domestic resource mobilization gradually turned to increasing public funding for health and the mechanisms to do so. By the end of the 1990s, Peru’s first experiences of publicly funded health insurance mechanisms had been implemented and by 2002 the Seguro Integral de Salud (Integrated Health Insurance) was created to provide protection to poor and vulnerable population. This subsidized scheme has been the driver of additional public funding (1 percentage point of GDP) and the reduction of household direct out-of-pocket expenditure.

I understand that domestic resource mobilization is particularly important in countries that are or soon will be transitioning from donor support. My advice is to not only focus on obtaining additional funding, but to also define the financing source and mechanisms and consider their intended and unintended consequences on the desired health system objectives.

Marty: We often hear from health officials that their governments choose to invest more in areas of infrastructure and sectors with clear and direct contributions to economic growth. How can ministries of health make a strong case for public spending on health?

Midori: It’s clear — as noted by the Commission on Investing in Health — that there is a substantial “pay-off from investing in health.” It has been argued that this investment has substantial social and economic returns and that new and more comprehensive approaches are needed to fully capture these returns (for example, a “full income” approach). More discussion and consensus building at the global and country levels would be extremely useful.

Most countries are facing multiple pressures on their health systems: ageing population, increasing burden of disease due to non-communicable diseases (NCDs) and higher social expectations regarding the quality of the health services, while simultaneously having to deal with the threats of local, national or global epidemics. These are also pressures on public spending, and they can pose a threat to the financial sustainability of the health systems, which is a major concern of Ministries of Finance. Fortunately, there is an increasing body of evidence of cost effective measures to curb these threats (including taxation policies as part of NCD prevention strategies).

So, again, making the case for public spending on health implies not only discussing the level of the expenditure but simultaneously presenting the efficiency and equity pathways of the allocation of these resources.

Marty: That’s a great point and an important reminder that making a strong investment case for health, particularly for a government’s finance authorities, comes with its own challenges. Health has important differences from other sectors, which make budgeting and planning particularly difficult — because health care needs vary across populations, time and geographic areas. What are some of the biggest challenges that you encountered in implementing a major health reform in Peru?

Midori: I would say, in general terms, that the biggest challenge is how to better face the resistance to change. The system works in a specific way because of a prevailing set of formal and informal incentives, values and capabilities, which tend to be difficult to change.

Reforms are typically approached from a technical point of view and in many cases consider “best practices” developed in other contexts. This alone has proved to be insufficient in dealing with the complex phenomenon of introducing substantial change in the system. I feel that the body of knowledge to help us understand and act upon complex problems is in its initial stages and more multidisciplinary work is needed.

The greatest challenges have been related to the need to reconcile short-term pressures with the medium and long-term nature of a health reform. Citizens demand visible and tangible change, heads of state need quick wins, ministries of finance are centered on next year´s budget, workers push for immediate salary increases, while the expected benefits of health sector reforms take time to unfold.

Marty: If you could offer advice to ministries of health and finance working together, what would you say?

Midori: At the May 2017 workshop in Accra, Ghana, focused on how to mobilize more public funding for health, I told participants that health and finance agencies really do share common objectives despite what each might think about the other. These shared goals can serve as a foundation for dialogue. And, fortunately, health and finance officials can continue to build on this foundation by using some tips and tools from my own experience. For example, here are five specific tips for improving cohesion between health and finance agencies around mobilizing government resources for health:

1. Institutionalize a regular consultative process between health and finance agencies among both senior and mid-level staff. This process should supplement formal budget negotiations with more frequent meetings and can help to build rapport and understanding.

2. Invest in personnel in both MOHs and MOFs that are well-versed in the technical terms of the counterpart institution (for example, economists in the MOH and public health specialists in the MOF) — hire them, train them and retain them. Combined with a regular consultative process, this can help to sustain dialogue during periods of leadership transition.

3. Support budget negotiations with good-quality, shared information on value. Value is a function of results over cost, and therefore it is important to present data on both health outcomes and expenditures.

4. Adopt a dual focus on short-term wins and medium-term planning. For example, fully spending the year’s health sector budget and improving financial controls in the near term can help increase the MOF’s willingness to engage in three-year budgeting exercises that provide the health agency with increased flexibility in spending.

5. Engage with a wide range of stakeholders when making a case for increasing public expenditure on health. Seek input from other social sectors like nutrition and WASH, donors, private sector providers, NGOs, citizens and the media, and form coalitions to bring political support to bear in favor of health sector spending.

From my experiences, if health and finance agencies both take these tips to heart, they are likely to avert lots of the challenges associated with working together as they move toward safeguarding public resources for health and spending it in the most efficient way. This is another challenge for which I’d offer some additional tips in a future conversation.