Healthcare financing and governance in Latin America.

• Author: Arredondo, Armando
• Position: Report

Abstract

The main objective of this study was to identify trends and results associated with health financing and governance indicators in the context of health systems reform. Evaluative research integrating qualitative and quantitative analysis was performed. The three Latin American countries of Mexico, Nicaragua, and Peru were selected as the universe of study. The research methodology had two main phases. In the first phase, the study referred to secondary sources of data and documents to obtain information about the following variables: type of decentralization implemented, source of finance, funds of financing, providers, final use of resources and mechanisms for resource allocation. In the second phase, the study referred to primary data collected in a survey of key personnel from the health sectors of each country. Results showed that evidence reported in all five financing and governance indicators may identify the major weaknesses and strengths in health financing. In addition, there was a lack of human resources trained in health economics who can implement changes, a lack of financial resources independence between the local and central levels, negative behavior of the main macro-economic variables, and difficulty in developing new financing alternatives. However, other results showed that there was a sharing between the central and local government levels in the financing health services, the implementation of new organizational structures for the follow-up of financial changes at the local level, the development and implementation of new financial allocation mechanisms taking into account efficiency and equity principles, new technique of a per-capita adjustment factor corrected at the local health needs, and the increase of financing contributions from households and local levels of government.

Introduction

New health financing policies and changes in health financing indicators after decentralization are the principal elements of health sector reform in a number of countries. It has increasingly been recognized, at both national and international levels, that management, financing, planning, and policy functions in the health sector may be carried out more efficiently and effectively if they are decentralized, transferring responsibility to a local level. However, there is growing concern that decentralization has failed to achieve the objectives for which it was introduced and can indeed have effects that limit health sector development (Hurley, 1995; Arredondo, 2000, 2005). The relationship between decentralization and financial changes in the process of health care reform in Latin American countries is complex. Analysis of recent attempts at decentralization and financial changes requires an understanding of the contradictory forces at work within the political systems, particularly, bureaucracies of Latin American countries (De Souza et al, 2002). In these countries strong centralizing tendencies coexist with particular forms of bureaucratic decentralization (Arredondo, 1997).

Centralizing tendencies remain predominant, with decentralizing forces both being caused by and serving to reinforce them. The type and degree of decentralization is strongly influenced by dynamic financial aspects, including sources of finance, agents, providers, final destination and mechanisms of financial allocation at the local, regional and national level. Local governments usually have authority to levy taxes. However, in developing countries, much of the national revenue comes from indirect taxes, especially customs and excise revenues, while buoyant local sources of revenue are hard to find (Collins, 1994; Abel-Smith, 1988). The local governments in these countries are often by necessity heavily dependent on grants from the central government. In addition, governments often retain central control over finance in order to promote geographical equity. The sources for financing local government may therefore not differ significantly from those of local offices of central ministries, though the way the grant is made is likely to differ (Quentin, 2004).

In this context, many Latin American countries have tried to decentralize their health care systems. A number of different approaches have been taken, with varying results that reflect strengths and weaknesses for each country (Murray, 2000). The results are strongly related to changes made in the mechanisms for allocating financial resources, especially the new financing dynamics for health services in the context of health care reform (Bossert, 2000). This financing study of health care decentralization quantifies the resources involved and analyzes the dynamics of the sector, its opportunities and sufficiency. At the same time, the study suggests ways to mobilize and reassign resources within the system at a national and regional level (Aguinaga, 1997). The financial changes for decentralization have been made according to the current state of health financing. For Latin American countries, public treasury funds are the principal source of financing for central and local government health spending. In addition, compulsory contributions of employers and employees to social security systems or health and welfare funds are the major sources of financing for expenditure on social security health care programs (Cassels, 1995).

In Mexico, budgetary resources have been reallocated in several ways. Although total federal government expenditure on health has been reduced, the proportion assigned to the health sector has increased in recent years (Alvarez, 1990). Analyzing the delegation of finances in the decentralization of health services in Mexico two constant factors emerge, setting a common pattern between decentralized and centralized health service organization (SSA, 2003). First, the continuation of separate federal and state sources of finance, without the state control of federal funds (SSA, 2004); and second, the maintenance of the federal labor relationship with all state health workers, right up to the director or minister of health. Thus, all decentralized state health services, whether called ministries, departments or institutes became, from the point of view of finance and control, de facto governmental organisms of both the state and the federal governments (Gonzalez et al, 1992).

In Peru, through regional secretariats for health services and municipal clinics there is now considerably more local autonomy, and greater financial and administrative decentralization. Regional secretariats and municipal clinics have their own legal status, staff, and possess their premises and equipment. The directors of these units, who may or may not be health professionals, have been given greater authority to manage the health facilities, staff, equipment and budget. In addition, managerial support for municipal clinics and regional secretariats has been strengthened by new financial departments. However, the regional authorities did not press for financial devolution, as this would have implied greater responsibility than they could cope with. In spite of fiscal and administrative reforms made to strengthen regional governments' revenues, their share of federal fiscal appropriations is still meager and awkward in its application, and their tax bases are also weak (Priale et al, 2002).

In Nicaragua, the constitution states very clearly how the national health system should be organized. The structure designed for the health sector is completely coherent with the federal structure of the Nicaraguan state, with three autonomous spheres of power. A decentralized health system with only one authority in each sphere of power seems appropriate. Moreover, decentralization and community participation are explicitly mentioned as directives that the national health system must follow. The only political units in the country that provide health services to the population are at a county level, with some national units. The federal and state governments must provide the necessary financial resources and technical cooperation to ensure that their obligation to healthcare is executed. Since 1986, the implementation of health care decentralization in this country has been seriously obstructed by political changes in the federal government. Lack of federal/national policies to strengthen the ability of counties to execute their new functions remains a barrier to implementing decentralization. Also, the lack of a data base of the national health accounts, with which an analysis could be coordinated, has hampered decision making for health care financing in the context of decentralization (MINSA, 2003). In appendix A, we give more detailed information about the background and meaning of health care decentralization and financing changes in each country.

In summary, the tendencies both to centralized financial authority and decentralized administrative authority coexist in the health systems of Latin American countries. In a complicated and often seemingly confused manner these tendencies combine and conflict with one another, with the centralizing tendency remaining unquestionably dominant (Cercone, 2004). Moreover, this centralizing tendency results in the over-concentration of decision making at the top of the hierarchy and, in turn, generates decentralizing efforts aimed at decongesting the overloaded levels of decision making within central ministries of health. In this environment, the possibilities for devolution of financial power from central bureaucratic agencies to local...