18 Health Financing & Asset Management

outline
1: Health care financing in Ethiopia
2: Health care financing reform in Ethiopia
3: Financial Management
4: Financial Audit in the Health Sector
Learning objectives:
• Discuss the health care financing strategies in Ethiopia
• Explore better approaches for mobilizing financial resources
• Make appropriate decisions on revenue generation schemes
and /or health insurance
• Discuss principles of financial management
• Utilize financial information for decision making
• Understand asset management procedures and apply
appropriate practice
Activity 1
Duration: 10 minutes
Group exercise
To do this exercise, please refer to the participant’s
manual
 Health Care Financing
• Deals with mobilization, accumulation, allocation,
and utilization of funds for health care to cover the
health needs of the people and for specific types of
health care services.
• It is concerned with where the money comes from,
how it is collected, how it is pooled and how it is
used to pay health service providers
 Health Care Financing in Ethiopia
The FMOH of Ethiopia has been implementing the Health Care
Financing Strategy since 1998.The revised (HCF) Strategy is contains the
following objectives:
• Realization of progress towards universal health coverage
through enhancing risk protection mechanisms and protecting
all indigent
• increasing domestic source of health financing and strengthen
public private partnership to gradually reduce aid dependency
over long term;
• Continue investing on the essential health services (exempted
health services) sustainably
 Health Care Financing in Ethiopia (2)
The following are among the specific strategies of the
Health Care Financing
• Mobilization of adequate, innovative and sustainable
financing
• Reducing out of pocket spending at the point of use
• Enhancing fairness and Equity
• Enhancing efficiency and effectiveness
• Strengthening public private partnership
• Capacity development for improved health care financing
Major approaches to be focused on health care
financing:
• Advocating for a gradual increase in public budget
allocation to health, as economic growth broadens the
fiscal space.
• Generating new financing sources from innovative
financing mechanisms.
• Managing donor support to ensure continued and
gradual shift towards domestic funding which does not
undermine health goals and progress towards UHC
Basic principles of resource mobilization
• Strive for sufficiency
• Focus on and technical efficiency
• Ensure Equity
• Transparent management of resources
• Effective expenditure
2: Operational Standards
Operational Standards
1. The hospital has established finance, procurement and asset
management structure, personnel as cost unit and an
operational plan , approved by the Senior Management Team
that details:
 The process of submitting procurement requests
 The responsible body/person for approval of procurement
requests
 The means of procuring
 Responsible person(s) for procurement activities
 A five year plan for major capital purchases
Operational Standards
2. Bilingual service fee schedule posters are displayed beside each
departmental reception desk, in all waiting areas and at all cash
points. Each poster shows the fees and advises patients to obtain and
keep receipts for all payments.
3. The hospital provides exempted services in accordance with the
relevant Federal/Regional Legislation and displays a list of
exempted services at appropriate locations through the hospital for
the information of patients, staff and the public.
4. The hospital provides all services indicated in health insurance
benefit package in accordance with the agreement and should be
displayed at appropriate locations through the hospital for
information for the patients, staff and the public.
 Operational Standards

5. The hospital submits timely payment requests/claims /reimbursements for services to

the Health Insurance Agency and fee waiver beneficiaries in accordance with
established standards and formats.
6. The hospital keeps records of services provided to eligible health insurance agency,
fee waiver and exempted service beneficiaries and related financial information as
appropriate and, reported to the relevant body.
7. The hospital ensures a private wing service is established in accordance with the
required federal /regional directives and approved by the Hospital Governing Board.
8. In a hospital where services are outsourced, procedures are in place to monitor the
contract and services provided and contractual agreements comply with relevant
government directives.
9. The hospital establishes multi-year budgeting and expenditure which link to
programs and priorities of each department and fiscal information is channeled
through various medium of communication.
Operational Standards
10. The hospital stock management ranging from identifying
the need for a property to materials and supplies in order
to receive, use and dispose complies with the relevant
guidelines and disaggregated by each department.
11. The Hospital accounting system should produce and
access periodic reports to the relevant bodies at all
levels.
12. Internal audit on quarterly basis and external audit at
least once in a year conducted and reports are reviewed
3: Implementation Guidance
 Health care financing reform:
• HCF Reform ( 1st generation reform) is an alternative arrangement for
mobilizing, collecting, paying and managing health resources in order
to increase efficiency, promote equity and improve access and quality
of health services
• Establishment and operation of HFs governance
•HFs revenue retention and utilization.
•Systematizing the fee waiver system and exemption scheme
•User fee setting and revision
•Outsourcing of non-clinical services.
•Establishment of private Clinics/wings/rooms in public hospitals.
• Health insurance ( 2nd generation reform) at the national, regional,
zonal/Woreda, and health facility levels:
 Hospital Budget Planning
A budget is an estimate of the maximum level of resources
(financial, human, natural) available to spend in order to
achieve a desired set of outcomes.
a) Budget planning e) budget approval
b) budget preparation, f) budget appropriation
c) budget hearing and g) budget notification
recommendation h) budget allocation, and
d) budget consolidation, I) budget implementation, monitoring
and reporting.
Facility Governance, revenue retention and
utilization
Central to the Health Care Financing Strategy is the
enhancement of hospital autonomy, with authority
decentralized to the hospital in areas such as
• strategy
• planning
• budget development and execution
Each Hospital shall be administered by Hospital
Management Board
 Role of RHBs in facility governance
• Ensure block budget provision to hospitals
• Provide technical assistance in setting proper
system for operation
• Create an enabling environment for hospitals to
obtain the necessary manpower, material and
finances
• Nominate board members
 Role of Boards in facility governance
• Approve short, medium and long term plans and
budget of the hospital
• Hires general manager and approves employment
and promotion of department heads
• Hire required employees and fire those found unfit
• Determine responsibility and duty allowances
• Determine non-clinical services to be outsourced
• Set standards and follow operation of private wing
 Revenue Retention & Utilization
Meaning: the discretion given to HFs to retain and utilize facility
revenue for quality improvement.
 Why revenue retention & utilization?
o Foundation for all HCF reform agenda
o Facilities' ownership to control leakage
o Generates resource for quality improvements
 Revenue retention:
o Is additional to budget allocated by government
o Should be invested strictly on quality improving activities
o Should be appropriated before use
 Sources of Facility Revenue and collection
mechanism(1)
a. Block budget appropriated by the government
b. Fees collected from health care and diagnostic
services
c. Sale of drugs and medical supplies
d. Revenue collected from third parties
 Sources of Facility Revenue and collection
mechanism(2)
e. Revenue collected from third parties
f. Fees collected from consultancy, trainings and
research activities
g. Income from non-medical services and goods
g. Direct aid in cash and in kind obtained
 Fee waiver and Exemption
Meaning: a right conferred to a household or an individual that
entitles the household or the individual to obtain health services in
public health facilities at no charge.
Why fee waiver?
o financial risk protection
o to ensure sustainability of financing
o impact on quality
Beneficiaries of the fee waiver are identified and issued with a ‘fee
waiver certificate’ by a Waiver Certificate Granting Authority
Hospitals should enter into a Memorandum of Understanding
(MOU) with Waiver Certificate Granting Authorities.
 Exempted Health Services

• Exempted health services should be provided free of charge to all

patients, irrespective of the patient’s income.
• Exempted services are generally those of a public health nature
such as:
– TB services
– HIV services
– leprosy services
– family planning services in primary health care units
– prenatal, delivery and postnatal services in primary health care units
– immunization services
– fistula management
– epidemic follow up and control
– occupational health services for health professionals
 Outsourcing of health facility services
Meaning: outsourcing is the agreement between a health facility as a
purchaser, and a third –party provider of services as a vendor pursuant to
which the vendor provides to the health facility certain defined services
formerly performed by the health facility itself .
Health facilities can out source some clinical & non clinical services to third
parties so that they can focus on their core business of providing health
services.
Why outsourcing?
o• Improved Quality of Services.
o• Reduce and control operating costs.
o• Gain Efficiency and effectiveness.
o• Incorporation of external expertise into heath facilities operation
o• Free management to focus on core competencies.
 Services to be outsourced:
Accordingly, Some of selected non clinical services to be
outsourced include:
a) Cleaning services

b) Laundry
c) Food preparation and supply
d) Fixed assets maintenance and services
e) Printing services
f) Protection services
g) Transportation services and others which the hospital board may
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decide to include in the list
 Public Private Partnership in Hospitals
Public Private Partnership (PPP) is an arrangement between public sector
and private sector which aims at joining forces together to meet public
needs through the most appropriate allocation of resources, risks and
rewards. Public Private Partnership in Health (PPPH) particularly:
 provision of secondary and tertiary level health services ;
 manufacturing indigenous health products;
 alleviation of human resource constraints.
To encourage the private sector for a high end diagnostic services (laboratory and
imaging services), high end clinical services such as Hemo-dialysis, radiotherapy,
neurosurgery and rehabilitation medical services and others unmet need driven PPPH
projects in the premises of the public health facilities.
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 Why private wing?

Meaning: refers to an official arrangement according to which medical

services are provided, on a fee-for-service basis, to inpatients and/or
outpatients in public hospitals:
• To mobilize additional resources
• To improve quality of service in the non-private
wing sections
• To increase motivation and reduce attrition of
health workers
• To provide an alternative choices of care
 User fee setting and revision
• One of the key guiding principles is cost-sharing principle
• Hence, setting health service fee became the responsibility of
the regional government
• User fees may be revised every five years
 Health Insurance
• Formal arrangements where insured persons are
protected
• A lawful provision relieving the public from the
unforeseen medical bills
 Rationale for health insurance (1)
1. Elimination of catastrophic health expenditure
2. Improves utilization of health services
3. Creates risk pooling b/n different income groups
4. Improves the quality of healthcare services
5. Ensures equity in health care provision
6. Strengthen community participation
7. It provides additional source of funds to the health sector
8. Cost sharing
 Types of Insurance
• Social Health Insurance
• Community Based Health Insurance
• Voluntary Health Insurance
 Types of Insurance
• Social Health Insurance
• Community Based Health Insurance
• Voluntary Health Insurance
 Financial Management
• Defined as the planning, directing, monitoring, organizing
and controlling of the financial resources of health facilities.
• Its purpose is to assure adequate funding for all health care
services in the nation.
• The hospital Accountant should prepare monthly and quarterly
reports on revenue, expenditures, receivables, payables, trial
balance, the status of budget utilization and others.
• Reports should be submitted to the hospital management and
Governing Board.
Basic accounting procedures and cycle
Managers within the sector have to ensure that:
• Different units of the health sector are following
proper financial management
• Revenue collection, utilization and reporting systems
should align with government financial management
 Financial Audit
• An audit is the examination of the financial report of
an organization - as presented in the monthly report -
by someone independent of that organization.
• Each hospital should appoint an Internal Auditor who
is responsible to conduct regular internal audit as
described in the government Internal Audit Manual.
• External audit should be conducted by external
auditors from the Office of the Auditor General
(Federal or regional Audit office) or other authorized
private auditors, approved by the Governing Board,
within six months of the closing of the accounts.
 Reports for Financial Audit
The financial report to be audited includes:
• Balance sheet
• Income statement
• Statement of changes in equity
• Cash flow statement
• Notes comprising a summary of significant
accounting policies
 Inventory Management (Inventory Control)
System
An inventory management is a system that informs
the store manager;
• How much stock is available
• When to order more stock
• When to issue
• How much to order or issue and
• How to maintain an appropriate stock
 Fixed asset management unit (FAMU)
• Each hospital should assign a unit responsible for the
management of fixed assets.
• The responsibilities of the FAMU are :
– To establish the fixed asset register,
– To undertake an annual physical count of all fixed assets
and reconcile with the register,
– To ensure that all fixed assets are put to appropriate use,
– To calculate depreciation on fixed assets, and
– To identify items for disposal.
 Procurement of Fixed Assets
A. Procurement Plan & Procurement Policy
– Each hospital should prepare a 5 year plan for the
purchase of major capital. A detailed annual procurement
plan should be prepared showing the procurement for the
budget year.
– All hospitals should have a procurement policy detailing:
• the process of submitting procurement requests,
• the responsible body/person for approval of
procurement requests,
• the means of procuring, and
• the responsible person(s) for purchasing activities.
B) Considerations for procurement
• When fixed assets, and in particular medical equipment is
purchased the following considerations should be made:
• Is the item appropriate to the hospital setting? Consider:
– Environmental factors such as power and water supply,
altitude, humidity, heat, dust etc
– Physical space required and interface with required
utilities
• Is it of good quality and safety?
• Is it easily used and maintained?
• Is it easily used and maintained?
 C) Methods of procurement
• Federal Legislation stipulates that the preferred
method of procurement is ‘open bidding’.
• Other options that may be considered when
open bidding is not suitable include:
– Request for proposals
– Two stage tendering
– Restricted tendering
– Request for quotation
– Direct procurement
 Register of fixed assets
• The hospital should establish a register of fixed assets that
contains information on the date of purchase, description,
quantity and cost of each item.
• Key steps are outlined below:
– Decide on date of count
– Inform internal audit department,
– Organize a team of counters, checkers and supervisors.

Insurance for fixed assets

• All fixed assets should be valued and recorded in
the hospital accounting records.
 Disposal of fixed assets
• Fixed assets may be disposed when the item becomes
unserviceable, obsolete, surplus or abandoned.
• Government regulations describe approved methods
of disposal:
– Transfer to other public bodies
– Disposal by sale
– Sale by public auction
– Sale through public tender
– Sale as scrap
– Discarding
 Purpose of Inventory Management (Inventory Control System)

To make sure enough products are readily available,

complete and accurate information (record) should
be available at each level of the logistics system:
• When they are stored (using Inventory Control
Cards)
• Transported (using Transaction Records)
• Used (using Consumption Records)
 Responsibilities in Inventory & Storage of Asset

• Allocating budgets to improve the storage condition in

health facilities
• Provide on site supervision and build capacity of officers
in improving storage conditions
• Help facilities to distract damaged and expired products
 Overview of Logistics Management Information
System (LMIS)
It is an information system to make logistics decisions
such as;
• resupply
• forecasting
• Quantification
• procurement
The purpose of LMIS is to collect, organize, and
report information to other levels in the system.
 Storage principles
• Pharmaceuticals should be protected from sunlight, heat, and
water; and store managers should follow manufacturer’s
recommendations for storing supplies.
• All the necessary information is usually written on the product
carton and boxes.
• There are standard storage procedures that should be followed at all
facilities.
• When all levels of the logistics system follow these procedures,
customers can be assured that the same high-quality product has
been put in their hands.
• Store managers can also evaluate how well their storage is
performing against these procedures and look for ways to improve.
 Ensuring quality storage would require doing all
of the following (2)
• Limit storage area access to authorized personnel and
lock up controlled and high value products
• Stack cartons at least 10 cm off the floor, 30 cm away
from the wall and other stacks, and no more than
2.5m high
• Store medical supplies away from insecticides,
chemicals, old files, office supplies and other
materials
Thank you