PFM systems affect health financing in:

• the level and allocation of public funding (budget formulation);
• the effectiveness of spending (budget execution); and
• the flexibility in which funds can be used (pooling, sub-national PFM arrangements and purchasing).

The systems ultimately determine how well health spending can be aligned to meet health coverage and service delivery objectives.

Most of the resources for UHC and the health sector in general will and should come from public budgets. More revenue for the health sector will not help achieve UHC goals if spending cannot be directed to priority populations, programmes and services.

However, countries have limited fiscal resources; growth in public health spending must be in alignment with the macroeconomic and fiscal capacity of the country. Therefore, optimizing how public funds for health are managed and flow through the PFM system is critical for achieving UHC objectives within available resources.

PFM systems and health financing functions must be harmonized to meet objectives to have effective service delivery that can make public funds available for priority populations, programmes and services to meet UHC objectives.

PFM systems and processes (budget formation, budget execution, expenditure control and reporting) must be sufficiently flexible to enable provider payment systems to move from paying for a building with all services provided, to paying for either specific services or for services to specific individuals. Sufficiently flexible PFM is a pre-condition for integrating strategic health purchasing.

A key step to implementation is therefore the ability to target health budget funds to priority services (such as maternal and child health) and specific populations (such as the poorest). This means that clearly defined priorities can be realized (or purchased) in practice.

As countries plan health financing improvements to address the specific challenges of the health sector, it is important for health policy-makers to understand the PFM system and any ongoing reforms in order to frame and guide dialogue with the ministry of finance. There are specific challenges with alignment of PFM and health financing reform objectives related to each health financing function.

Revenue raising

The health sector requires sufficient and stable resources to meet stated objectives, and funds must be raised equitably and efficiently.

Pooling

Effective pooling of public funds requires both a mandate and a fiscal mechanism to accumulate funds for health based on the ability to pay and reallocate them according to need.

Purchasing

Strategic purchasing requires flexibility to allocate funds to pay for outputs and outcomes, and well-functioning information systems to design, implement and monitor purchasing mechanisms.