Summary
This report describes a spreadsheet tool designed to inform the allocation of health service funding to district councils in Malawi. The methods seek to allocate funds between districts so as to provide the opportunity of securing equal access to services for equal need for the interventions contained in Malawi’s Essential Health Package (EHP). The relevant funding streams for allocation relate to the available budgets for drugs and other recurrent transactions (ORT), but excludes costs relating to personnel.
Section 1 gives a brief introduction to the flow of funds in publicly funded health systems, and the rationale for using a funding formula to devolve funds to geographically defined administrative entities, such as the district councils in Malawi. It argues that the use of a formula can promote three classes of health system objective, related to efficiency, equity and politics. Funding formulae are in widespread use in developed countries, and are increasingly being applied in low and middle income settings. The intention of most formula is to estimate the expected costs to a locality of delivering some standard level of access to health services, assuming a standard level of efficiency (and, where appropriate, standard levels of user charges).
Section 2 summarizes the budgetary arrangements for the health sector in Malawi. The principal budgetary streams to which the analysis in this report refers are the drugs and ORT budgets. Personnel budgets are the responsibility of the Department for Human Resources Management and Development, and are not considered further here. As well as government funds, there are significant financial contributions from donor funds and local revenue generation. The primary administrative function addressed in this report is the allocation of drug and ORT funds to geographically defined district councils.
Malawi has a specified EHP comprising 106 interventions, arranged into 11 thematic headings. Whilst the EHP is intended to focus health system resources on the highest value interventions, the funds currently available at the national level are inadequate to secure 100% coverage of the EHP for all citizens in need. The resource allocation tool presented in this report seeks to allocate funding between districts on an equitable basis, so that each district can in principle deliver the EHP to its citizens to a uniform extent, as constrained by the nationally available funds.
Section 3 outlines the principal features of most resource allocation mechanisms, indicating the technical and political choices that must be addressed when developing a formula. The issues covered include: specifying the objectives of the formula; defining the devolved entities in receipt of funds; specifying the services covered by the formula; counting the population; adjusting for population medical needs; measuring costs; and treating cross-border flows.
The methods adopted are described in section 4. They first entail for each intervention specifying a target population group and multiplying by an estimate of the probability of requiring the intervention in a year. This is multiplied by an estimate of the unit cost of the intervention to derive the total spending need for that intervention in the district. The calculations for each intervention are summed to derive the total district allocation. This gives the costs of securing 100% coverage for all treatments. A variant of this model is developed by multiplying each treatment calculation by an estimate of ‘realistic’ coverage, to acknowledge that there will be differences between districts in the extent to which they can secure 100% coverage. These methods are implemented in an extensive spreadsheet, which forms the principal output of this project. All allocations are presented as a percentage share of the national budget, so the formula can operate at whatever funding level is available, with the implication that any shortfall in funding will be shared on an equal percentage basis across all districts.
The results are summarized in section 5. Under the full coverage model, the relative per capita spending needs vary from about one third of the national average in one district, to about 5.6 times the national average in another, although this last is an outlier, and most districts lie within a much narrower range. Application of the main formula would imply some very large reductions from current levels of funding (over 50%) in four districts, and more than doubling of allocations to two districts. A change from the ‘full coverage’ model to the more ‘realistic’ coverage model yields changes in allocations ranging from a decrease of 16% to an increase of 18%.
Section 6 seeks to put the results in context. It notes the strengths of the Malawi arrangements, most notably the existence of the EHP and the associated costings, and the extent of available data resources. The discussion nevertheless raises further issues for development and clarification, and reiterates the need to treat the tool and the results as a basis for further dialogue rather than a definitive recommendation.
Published December 2018