Reforming public financial management for health: A tool for recovery from the COVID-19 pandemic in Armenia

National health budgets are under pressure. As countries respond to the COVID-19 pandemic, they are also confronted with the unfinished universal health coverage agenda.  Before 2019, access to essential health services was increasing globally. However, the levels of catastrophic spending, or the proportion of households spending more than 10% of income on out-of-pocket health costs, was also increasing. The gaps in ensuring that all individuals can access the high-quality health care they need without suffering financial hardship have been widened by the pandemic, which has tested health system capacity to supply health centers and hospitals with enough hospital beds, medical equipment, personal protective equipment, and tests for COVID-19 case management, in addition to maintaining essential routine health services. 

In Armenia, before the pandemic, there were high levels of out-of-pocket spending and gaps in access to health care. Of all health spending in Armenia, over 86 percent is out-of-pocket spending at the household level. Also, 16 percent of the population spend more than 10 percent of their household spending on health. In addition, health financing from the public sector is among the lowest in the world, at 13 percent. In 2019, the Ministry of Health championed the design of reforms to increase public health funding, improve the process of deciding on health sector allocations, and reduce household health spending. With the COVID-19 pandemic, the Armenian economy is projected to contract by 6.3 percent in 2020, which will limit fiscal space for health precisely when the demand for health services is spiking. Given this reality, public financial management (PFM) reforms that ensure that the process of formulating, executing, and monitoring the health budget to facilitate improved health care are key to Armenia’s recovery.

Since 2019, the World Bank governance and health teams have provided joint technical assistance, supported by the Korea-World Bank Partnership Facility and the Bill & Melinda Gates Foundation, to identify ways that PFM bottlenecks affecting health service delivery can be overcome. The support is informed by the World Bank’s FinHealth: PFM in Health Toolkit, which provides a systematic approach to identifying PFM constraints to delivering high-performing health services. The recommendations in a recently published report draw on an in-depth review of country statistics, policy documents, and extensive consultations with health providers and public authorities, including senior policymakers in the ministries of health and finance, directors of health facilities, and heads of department in key agencies involved in finance, audit and accounting in the health sector.

A high-performing health system should efficiently and equitably deliver access to high-quality services while keeping actors accountable.  We find that PFM constrains the performance of the health system in Armenia, as shown in the fishbone diagram:

• Armenia lacks a comprehensive health sector strategy, resulting in PFM processes that may not be deliberately linked to health service delivery goals.
• Underfunding of services within the basic benefits package, the lower supply of skilled health workers in the regions (compared to Yerevan), and limited involvement of health facility staff in planning the health budget contribute to gaps in access to care.
• Budget program fragmentation and small-scale procurement of goods and supplies in rural health facilities (with resulting low negotiating power) contribute to inefficiencies in health care.
• The undersupply of skilled health workers in the regions, variation in regulations on health worker performance and remuneration, inadequate investments in maintenance of hospital infrastructure and equipment, and procurement challenges contribute to gaps in the quality of care.
• The lack of consolidated financial information and weaknesses in internal and external audit contribute to limited facility accountability.

In discussion with key stakeholders, the report identifies short and medium-term reforms that the Ministry of Health can advocate for or lead, in partnership with the Ministry of Finance, to address the binding PFM constraints to improving health system performance.

In the short term:

• A comprehensive and costed national health reform strategy can link the short-, medium-, and long-term goals of the health system to targeted PFM reforms.
• Legislation should be revised to unify regulations for health worker performance and remuneration to improve quality of care and accountability for the payroll.
• The procurement of commonly used drugs and medical supplies for primary care should be consolidated under the Ministry of Health to improve quality, while boosting savings.
• Clear and transparent selection criteria for public investment projects for the health sector should be introduced to better target resources to population health needs. 
• Capacity building and incentives to attract qualified professionals can strengthen internal audit systems at the Ministry of Health and regional levels and improve assessments of the effective use of budgetary allocations. 

In the medium-term:

• Increased public funding by allocating a greater share of the government budget to health is necessary to improve financial protection and make progress towards achieving universal health coverage. 
• Budget preparation, which is led by the line ministry, should increasingly involve regional authorities and health facilities to better link allocations to service delivery needs.
• To address shortages of skilled health workers, budget funding for living expenses and other costs should be allocated to motivate medical professionals to fill vacancies in the regions. 
• The capacity of health facility staff to develop sound technical specifications for procurement should be strengthened to improve the quality of procured medicines and supplies and increase savings. 
• The share of capital costs in the health sector budget should be progressively increased to improve existing health infrastructure.
• New legislation should be developed that specifies requirements for mandatory annual audits of health facilities and standards for independent oversight of external audits to improve accountability for health spending. 

As the Armenian economy contracts, these PFM reforms will help health policy makers improve equitable access to quality health care, while ensuring efficiency and accountability.  Read the full report in English and Armenian.