Message 2: Support the four facility financing tenets Message 3: Understand PBF incentives in a broader health

and what can be financed through the SHI. However, if the SHI is not better at raising funds or pooling risks than is done by tax authorities or through the budget, it may not be advisable to support such a system (Yazbeck et al. 2020; Yazbeck 2021). The only advantage of the SHI remains that it gives authorities greater flexibility in terms of purchasing than a typical PFM system allows. Rather than retaining an entirely separate scheme, it may be more efficient to reform the PFM system to mimic purchasing functions.

Concerns about sustainability differ depending on countries’ public health budgets and health systems. In countries such as Tanzania, for example, the PBF experience contributed to a process of rethinking facility financing through government channels. In other, more fragile and donordependent countries, such as the Central African Republic or Chad, for example, the sustainability agenda—at least in the short term—should revolve much more around reducing the government’s transaction costs in dealing with external resources and reducing the risk of discontinuation of services due to donor-specific funding cycles or budget cuts through greater use of pooled financing mechanisms.

Message 2: Support the four facility financing tenets

How health facilities operate within a health system is a central aspect of health financing reform. Therefore, creating an enabling environment is key and can lead to important gains in efficiency and access to quality services. This can be done by supporting the facility financing tenets identified in a forthcoming WHO paper on direct facility financing (O’Dougherty et al. 2022).

Tenet A: Health facilities require budget autonomy and spending flexibility Incentives can only be effective if facilities have the decision space to react to them. Whether facilities will promote utilization or efficiency will be a function of their ability to react to the incentives set by the purchasing mechanism. Therefore, provider autonomy is a fundamental facility financing tenet, including for PBF. This does not mean that facilities need to be private, as they can have autonomy within a public sector setting. Autonomy is also not binary. Issues that affect autonomy relate to a facility’s legal status, its ability to receive and spend funds, and its ability to make

decisions on human resource management, including hiring, firing, provision of incentive payments, and taking corrective action.

On the use of funds, there are significant variations and the level of autonomy may differ by expenditure type. For example, salaries may be paid centrally, drugs procured by a central medical store, and investment spending managed by the district administration. This would only leave autonomy over other nonwage recurrent spending. The degree to which facilities should have autonomy over various spending items will vary by country context, but it is an important factor to consider. Facilities should be limited in purchasing items that fall outside the remits of their level of care (for example, a primary care provider should not have the autonomy to procure a magnetic resonance imaging scanner).

Tenet B: Health facilities require adequate financial management capacity It is important that facilities can manage funds prudently and carefully account for and report on the use of funds to ensure accountability and inform decision making. Although it is preferred that facilities are paid against outputs, this does not relieve them of the need to account for and report on spending against inputs. Ledgers on revenue and expenditures must be maintained carefully and audited periodically. Further, due process is required for the procurement of products and services to ensure value for money. These aspects are akin to basic business management. As financial management capacity at the facility level grows, ministries of finance are likely to be more willing to extend greater degrees of autonomy to facilities. As such, this is likely a sequential reform process over the medium term.

Emerging technologies can be explored to minimize capacity-building needs. For example, it may not be desirable to hire accountants at every facility. Instead, payments made through smartcards or mobile money that automatically captures spending categories would greatly reduce the financial management burden on facility managers who in turn can focus on patients instead.

Tenet C: A unified payment system supports facility management Health facilities often draw on multiple sources for payment. These may include input-based budget provisions from the government budget, revenue from user fees, payment from insurance funds, and support from various development partners. These multiple sources fragment the

payment environment and can lead to conflicting incentives and inefficiencies. They also place an undue burden of accounting and reporting requirements on health service providers and make strategic planning difficult (Piatti-Fünfkirchen, O’Dougherty, and Ally 2020). Unifying payment streams therefore becomes critical. If pooling resources at a higher level is not possible, it may be desirable to ensure that there is a common facility plan that includes anticipated revenue from all the financing sources and that budget execution protocols are harmonized such that there are no significant differences in how money can be used across financing sources. Furthermore, unifying the payment system is important to make the output orientation of the budget effective as the design of the payment system and underpinning incentive structures need to consider all financing sources.

Tenet D: Health facility payments should be output oriented Input-based budget provisions alone cannot adequately serve health sector needs as they are designed to ensure financial accountability and budget control rather than incentivize the behavior of health providers. An outputoriented payment system, in contrast, reimburses facilities based on the number of people served and the types and volumes of services provided. This can help incentivize the efficiency of provider management and utilization of services. Relating payments to outputs also shifts the accountability relationship from accountability of financing inputs to accountability of the provision of services.

An output-oriented payment system introduces significant flexibility. First, the facility operating budget becomes a function of the workload rather than being predetermined at the beginning of the year. Second, there are inherently fewer input-based controls, and facilities can reorient spending according to need. Transitioning toward an output-based payment system is therefore desirable. In practice this may not be possible for all spending items. For example, the wage bill may still be paid on an input basis, and there are inherent economy of scale advantages in purchasing drugs in bulk. In addition, most payment systems are mixed payment systems. To make these effective, it is critical to make it a purposeful mixed payment system with incentive structures that are mutually supportive. The output orientation can inform the operational budget and be a combination of simple capitation supported by performance indicators.