Health spending: getting the balance right
Dr Margaret Chan
Director-General of the World Health Organization
Mr Gurria, Secretary-General of the OECD, distinguished delegates, colleagues, ladies and gentlemen,
I have been asked to address the issue of health spending. I will do so from a public health perspective.
Medicine is concerned about the care of individual patients. Care is constantly improving as knowledge and technologies advance.
Public health is concerned about the health of populations. Like the medical profession, public health wants to see as many patients cured as possible.
But public health also seeks to address the factors that make people ill in the first place.
In large parts of the world, basic improvements in water supply and sanitation, nutrition, housing and education, especially for girls, can mean just as much for population health as advances in medical knowledge and technologies.
Public health is equally concerned with equitable access to care, especially for the poor. Growing gaps in health outcomes are a reality that must be addressed.
Most of these gaps arise from our failure to get existing interventions to those who need them most.
Public health operates according to three overarching principles.
First, the highest duty is to protect populations from risks and dangers to health. Within countries, this duty falls to government.
Second, the highest ethical principle is equity.
People should not be denied access to life-saving and health-promoting interventions for unfair reasons, including those with economic or social causes.
Third, the greatest power of public health is prevention. As resources will always be constrained, ways of funding preventive interventions must be assured.
Each of these principles has financial implications, which I will address.
Ladies and gentlemen,
The gaps in health outcomes are unacceptable, and they are getting wider.
Nor are these gaps easily compartmentalized, with wealthy countries at one end and developing countries at the other.
More developing countries now have pockets of wealth that attract the lion’s share of spending on health.
More wealthy countries have growing urban slums and shantytowns, often populated by immigrants, that drain health resources and strain the social welfare system.
The Millennium Development Goals represent the most ambitious commitment the international community has ever made. The time-bound Goals are a commitment to tackle the interacting causes of poverty at their roots.
The Goals include diseases with a two-way link to poverty. These diseases thrive in impoverished settings, and they deepen poverty.
The health-related Goals are all about fairness in access to essential care.
We have, right now, the interventions and the proven implementation strategies to reach each of the health-related goals.
For example, 10.5 million children under the age of five die each year. At least 60% of these deaths could have been prevented by just a handful of effective and affordable measures. Fairness in access to care is not a new concept, but it has become all the more relevant today. As we all know, globalization creates wealth but has no rules that guarantee the fair distribution of this wealth. No one has any illusions. Reaching the MDGs is not just about commitment, good tools, and good strategies. It is also about delivery systems and the money to pay for services. When health is perceived as a poverty-reduction strategy, the question of who pays for health care for the poor becomes absolutely critical. This question has become even more pressing in view of recent trends. In affluent countries, the ageing of populations and the availability of increasingly sophisticated technologies have increased health expenditures. They have also increased the need to provide enough health workers for more people suffering from more chronic conditions. This need is often filled by recruiting health professionals from developing countries.
Developing countries are experiencing a dramatic rise in chronic diseases, including heart disease, cancer, diabetes and asthma.
The demands of chronic care greatly increase the burden on health systems at a time when the health workforce has been depleted.
WHO estimates that an additional 4 million doctors, nurses and other workers are urgently needed to maintain essential care in 57 countries.
In addition, the costs of chronic care can be catastrophic for households, and can push them even deeper into poverty.
Ladies and gentlemen,
I will address three main issues.
The first concerns the duty of public health. Many governments simply cannot afford to perform their essential public health functions.
Funds are presently inadequate and new solutions are being explored, but countries must remain in the driver’s seat. Finding the appropriate mix of financial options is the responsibility of government.
The second issue concerns the principle of equity. Universal access to care, and to social protection for attaining this care, must be the goal.
The third issue concerns prevention. We need to rethink the role of primary health care. Primary care is the surest route to universal access.
It is also the gatekeeper for the referral system, and has great potential to rationalize health expenditure.
Primary health care stresses prevention, so that fewer people need hospital care.
I often describe the prospects for public health as optimistic. Health has never before enjoyed such a high profile on the development agenda.
Goals on a grand scale need resources on a grand scale. Commitment and determination have sparked the best of human ingenuity.
Creation of the Global Fund to Fight AIDS, Tuberculosis and Malaria has been followed by a succession of innovative funding mechanisms.
In just the past year, we have seen the creation of an International Finance Facility for Immunization and the launch of the drug-purchasing facility UNITAID.
We have also seen the use of advance market commitments as an R&D incentive for new tools for the developing world.
These are additional sources of funds, using innovations ranging from the selling of bonds on financial markets to a tax on airline tickets.
These are most welcome initiatives. But even these new funds are not enough.
This is my first point.
External resources for health have indeed increased, from $7 billion in 2000 to $10.7 billion in 2003.
In a five-year period, low-income countries have seen an increase of almost 45% in external resources for health.
But let us look beyond these impressive global figures to consider the situation in countries.
We know that some countries have been unable to spend additional funds partly due to budget ceilings.
These ceilings are set by finance ministers who fear the possible impact of increased aid flows on inflation or on the appreciation of the domestic currency.
Two factors can contribute to more fiscal space and higher budget ceilings. The first is sound macroeconomic policies at the domestic level.
The second is more predictable, long-term flows of external resources.
More predictable funding gives finance ministers confidence that increased domestic spending can be maintained.
In an encouraging trend, health is increasingly seen as a producer of economic gains, and not just a consumer of economic resources. This may also give finance ministers greater confidence.
Even so, resources are inadequate.
Health economists estimate that a minimum package of essential health care costs around $40 per person per year. This figure may very well be too low, as it does not take into account the demands of chronic care and some other realities now seen in the developing world.
Yet even this low figure is beyond the health spending from all sources, including external support and private expenditures, in 50 countries.
Not surprisingly, 47 of these 50 countries are low-income countries. In these countries, average per capita spending on health is just slightly above $20.
How should we bridge this gap?
This is my second point. Universal coverage must be the goal. In the interest of equity, out-of-pocket payments, made directly from households to providers, is not the best answer.
Paradoxically, poor countries rely more heavily on out-of-pocket payments than do richer countries.
In low-income countries, household payments account for 40% of total health expenditure compared to 20% in OECD countries.
In addition, governments in affluent countries provide a much greater share of domestic health expenditures. This figure is around 73% in OECD countries compared with just over 50% in sub-Saharan Africa.
Reliance on out-of-pocket payments causes two problems.
First, many people will not seek care or continue care because of the costs.
As described by various reports, many of the world’s 1.3 billion poor still do not have access to essential interventions because of weaknesses in the financing of health care.
As a second problem, reliance on out-of-pocket payments can deepen household poverty.
WHO has produced estimates using household expenditure surveys from more than 90 countries.
According to these estimates, payments for health services cause around 150 million people to suffer financial catastrophe each year.
The costs of health care push around 100 million of these people below the poverty line.
The conclusion is obvious. If we want health to work as a poverty-reduction strategy, we cannot let the costs of care force impoverished households even deeper into poverty.
The need is equally obvious. We need financing systems that ensure and maintain universal coverage.
What are the existing options? If we want to achieve the MDGs, we have no time to start from scratch.
When planning to scale up coverage, each country must choose the mix of public and private services and financing that best suits its social, cultural, and historical context.
As a provider of health services, the private sector is particularly prevalent in low- and middle-income countries. In these countries, the private sector is used by low-income households as well as by the wealthy.
In many countries, people choose to pay for private care because of inadequacies in government-run services. Public clinics are often poorly staffed, with long waiting lines and frequent shortages of essential drugs.
All too often we hear the story of a mother, whose child is desperately ill with malaria, who gets a correct diagnosis and a prescription, but cannot obtain any life-saving drugs.
The private sector, on the other hand, is largely unregulated, as is the quality of care and drugs it provides.
A major part of health funding needs to come from contributions that are pre-paid and that are pooled.
As part of the quest for universal coverage, some innovative experiments are currently under way.
Two new mechanisms are worth considering: micro-health insurance and conditional cash transfers.
Micro-health insurance is a variant of microfinancing schemes. It mobilizes modest financial resources from low-income households, pools these resources into a fund, and uses this fund to protect households from catastrophic illness.
Micro-health insurance currently operates in 32 countries, protecting more than 11 million people in Bangladesh, India, and West Africa. In terms of equitable access, this scheme has its limits. For extremely poor people, even the modest costs of health insurance will be beyond their reach.
Conditional cash transfers are a second option. In this scheme, cash is transferred to the poor when certain conditions are met.
Cash may be transferred when children are in school, vaccinations are up-to-date, nutrition is appropriate, or pregnant women regularly attend maternal care sessions.
In other words, payment depends on compliance with health-promoting behaviours. Conditional cash transfers stimulate the demand for health services.
For this scheme to work well, high-quality health facilities must be available at an affordable cost. The stimulus thus works two ways.
Julio Frenk has done ground-breaking work in this area. I look forward to his presentation.
Incentives for general practitioners are another option being explored in some countries, particularly as a way of encouraging physicians to stress preventive behaviours.
In the UK, for example, the introduction of financial incentives resulted in more doctors identifying the smoking status of patients and providing advice to stop smoking.
Ladies and gentlemen,
As my final point, I want to address the role of primary health care.
If you compare health expenditures and health outcomes around the world, you readily see that high investments in health do not necessarily translate into high levels of health throughout a population.
The structure and organization of health services play a more important role.
Structure and organization are the route to balanced provision of services, whether from the public or private sectors, and balanced financing from various sources.
Unfortunately, health spending is not well-balanced at present.
In most countries, hospitals consume the lion’s share of the health budget. Hospitals break the bank. In some eastern European countries, hospitals consume up to 70% of the total health budget.
Hospitals employ up to half of all physicians and three quarters of nurses . In developing countries, resource allocation is often biased towards curative and hospital care, leaving little left over for primary care in rural areas, where the need for essential care is usually greatest.
Not only do hospitals break the bank. They are also over-utilized. Patients often perceive hospitals as providing a superior quality of care.
Through self-referral, problems that could have been treated at the primary level of care flood into hospitals. Low rates of formal referral from primary and secondary levels of care contribute to the problem.
These failures mean that simple conditions are often treated in a high-cost environment.
In addition, patients with HIV/AIDS occupy a significant proportion of hospital beds in many countries. Only some of these patients actually require specialized or tertiary care.
The rise of chronic conditions throughout the developing world compels us to seek more efficient solutions. The immediate need of HIV/AIDS patients for chronic care adds further urgency.
Primary health care is the best system for reaching households with essential care, and the best route towards universal coverage.
It is also the best gatekeeper for ensuring that simple conditions receive appropriate and affordable care.
The costs of health care are escalating everywhere. As I mentioned, the greatest power of public health is prevention. This includes the prevention of unnecessary expense.
At WHO, we are currently looking at primary health care as an approach to strengthening health systems. This issue will receive prominence next year, when we celebrate the 60th anniversary of WHO and the 30th anniversary of the Declaration of Alma-Ata.
As I said, political commitment, good interventions and good strategies for implementation are not enough. The international community has made unprecedented time-bound commitments.
Nothing in public health is easy, but the hardest task is reaching the poor. We know from long experience that the most successful initiatives are those that align with national priorities, are locally owned, and engage communities.
As my concluding remark, let me repeat a statement: the costs of health care should not force households into poverty.
This is the greatest challenge as we pursue goals aimed at the elimination of poverty. It is a challenge that aligns well with the duty, the ethics, and the power of public health.