Exempted Health Services in Ethiopia: Cost Estimates and ... · services that are fully subsidized...

B.I.C.Breakthrough International Consultancy PLC

2018

Abebe Alebachew, Workie Mitiku, Carlyn Mann, Peter Berman

Resource Tracking and Management Project

June 2018

Exempted Health Services in Ethiopia: Cost Estimates and its Financing Challenges

Table of contentsII

Background paper on exempted service financing policy

Table of Contents

1. Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

2. Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

2.1. Data Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

2.2. Data Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

3. Types of exempted services provided in Ethiopia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

3.1. Description of essential health services package (EHSP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

3.2. HSTP and UHC targets for exempted services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

4. Estimating the costs of exempted services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

4.1. Findings of the PHC unit cost study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

4.2. Target population . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

4.3. Estimated cost of commodities for exempted services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

4.4. Health Center Exempted Service Commodity Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

4.5. Primary Hospital Exempted Service Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

4.6. Total exempted service costs: human resources, commodities and indirect costs . . . . . . . . . .15

5. Analysis of fiscal space at different levels of government administrations . . . . . . . . . . . . . . . . . . . in Ethiopia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

5.1. Fiscal space analysis at different level of government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

5.2. Macro-economic fiscal projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

5.3. Fiscal implication of financing cost of exempted commodities . . . . . . . . . . . . . . . . . . . . . . . . . . 22

6. Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25

7. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26

Table of tables and table of figuresIII


Table of Tables

Table 4.1. Unit cost of exempted services at primary hospitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Table 4.2. Unit cost of exempted services at health centers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Table 4.3: HSTP eligible target population for selected exempted services 2015/16-2019/20 . . . . . . 9

Table 4.4: HSTP target population for exempted services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Table 4.5 Unit cost for drugs and supplies of selected exempted services in ETB . . . . . . . . . . . . . . . .11

Table 4.6. Estimated cost of commodities for exempted services at the health center level (million ETB) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Table 4.7. Estimated cost of commodities for exempted services at the primary hospital level (million ETB) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Table 4.8: Total cost of commodities for exempted services both at health center and primary . . hospital levels, 2015/16-2019/20 (million ETB) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Table 4.9: Estimated total cost of exempted services (human resources, commodities and indirect . costs), 2015/16-2019/20 (million ETB) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Table 5.1: The share of health budget from the total government budget at different administrative levels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Table 5.2: Composition of total budget at different levels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Table 5.3: The share of different levels of government contribution to the total government health . budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

Table 5.4: Projected Macroeconomic fiscal framework (MEFF) in nominal terms (2018-2022) . . . . . 21

Table 5.5: projected allocation to health sector under two scenarios . . . . . . . . . . . . . . . . . . . . . . . . . .22

Table of FiguresFigure 1: Financing arrangement of the health sector including the EHSP . . . . . . . . . . . . . . . . . . . . . . . 4

Figure 2: Percent share of different exempted services by total cost and total commodity cost . . . 16

Figure 3: The share of capital budget from the total government budget . . . . . . . . . . . . . . . . . . . . . . . 18

Acknowledgements and ForewordIV


Acknowledgements

The authors would like to acknowledge the support and inputs of many colleagues in Ethiopia’s Federal Ministry of Health. Of particular note are Dr. Mizan Kiros, Ato Mideksa Adugna, and W/rit Eyerusalem Animut for providing guidance and leadership during the study.

Financial grant support from the Bill &Melinda Gates Foundation as part of the Resource Tracking and Management Project at the Harvard T.H. Chan School of Public Health is gratefully acknowledged. All errors remain the responsibility of the authors.

Cover photo by Alicia Harvey.

Foreword

Ethiopia has made substantial progress in developing its health care system over the past 20 years, contributing to the improvement of many key health outcomes (e.g., substantial reductions in under-5 child mortality and maternal mortality rates). The Federal Ministry of Health focused on expanding the public health care system at all levels of care across the country. This led to a three-tiered health financing model for health facilities focusing on: 1) 100% subsidization of key reproductive, maternal, child, and newborn health (RMNCH) and other high priority health services (e.g., malaria and tuberculosis treatment);2) partial cost recovery where typically salaries and non-drug operational costs are subsidized; and 3) full-cost recovery where the services, and resources required to provide them, are fully charged to the patient receiving that service. Key RMNCH and other disease priority services that are fully subsidized are referred to as exempted services or exempt from user fees that a health facility would charge to the user. The drugs and pharmaceutical supplies of exempted services are predominantly funded or provided by external sources.

As Ethiopia experiences continued economic development and health burden transitions, the government needs to focus on increasing domestic resource for health in general but also more specifically covering costly drugs and supplies currently provided by the donor community. This paper analyzes the fiscal space for the Ethiopian government to take over funding the drugs and supplies for exempted services according to key health targets over the next 5 years (2015/16-2019/20) as outlined in the Health Sector Transformation Plan (HSTP). A forthcoming policy paper will explore the options available to finance exempted services in the medium and long term and recommend appropriate financing mechanisms for Ethiopia based on consultations with the FMOH and other relevant stakeholders.

Suggested citation:Alebachew, A; Mitiku, W; Mann, C; and Berman, P. 2018. Exempted Health Services in Ethiopia: Cost Estimates and its Financing Challenges. Harvard T.H. Chan School of Public Health and Breakthrough International Consultancy PLC: Boston, Massachusetts and Addis Ababa, Ethiopia.

AcronymsV


Acronyms

ANC Antenatal careBIC Breakthrough International ConsultancyDP Development PartnerDPT Diphtheria Pertussis TetanusEFY Ethiopian Fiscal YearEHSP Essential Health Service PackageFMOH Federal Ministry of HealthGavi Global Alliance for Vaccine and ImmunizationGDP Gross Domestic ProductGOE Government of EthiopiaHEP Health Extension ProgramHEW Health Extension WorkerHSTP Health Sector Transformation PlanMOFEC Ministry of Finance and Economic CooperationMEFF Macro-economic Fiscal frameworkSDGs Sustainable Development GoalsUHC Universal Health CoverageWHO World Health Organization

Executive SummaryVI


Executive Summary

This paper tries to estimate the total cost of exempted health services in general which includes drugs and supplies, human resources and indirect costs and specifically the detailed cost of drugs and supplies for each exempted service using the target set in Ethiopia’s Health Sector Transformation Plan (HSTP) and unit cost study conducted on primary health care (at health center and primary hospital level) for the HSTP period (2015/16-2019/2020). As the human resource and indirect costs incurred to provide exempted services are currently covered by government through its existing human resource at health facilities and regular recurrent budget allocated to each health facility, the focus of this paper is more on estimates of the cost of the drugs and supplies component of the cost-commodities, which are financed by development partners. This focus helps consider options for sustainable financing if and when development partners funding declines or stops. The exempted services considered in this estimation are immunization (different types), family planning, delivery, tuberculosis treatment, anti-retroviral treatment (for adult and children) and malaria. Other exempted services such as leprosy are not considered here due to unavailability of data.

1 Background


1. Background

Developing countries, including Ethiopia, will need significantly more resources to meet the Sustainable Development Goals (SDGs) given the breadth and ambition to achieve these goals over the next 15 years. During the third Financing for Development (FFD) conference (July 2015 in Addis Ababa), countries, including Ethiopia, committed to raising more of their own resources for development through domestic resource mobilization (DRM) with the support from developed countries as stated in the commitment below.

We recognize that significant additional domestic public resources, supplemented by international assistance as appropriate, will be critical to realizing sustainable development and achieving the sustainable development goals. We commit to enhancing revenue administration through modernized, progressive tax systems, improved tax policy and more efficient tax collection. We will work to improve the fairness, transparency, efficiency and effectiveness of our tax systems, including by broadening the tax base and continuing efforts to integrate the informal sector into the formal economy in line with country circumstances. In this regard, we will strengthen international cooperation to support efforts to build capacity in developing countries, including through enhanced official development assistance (ODA). We welcome efforts by countries to set nationally defined domestic targets and timelines for enhancing domestic revenue as part of their national sustainable development strategies, and will support developing countries in need in reaching these targets. (UN 2015)

Ethiopia aims to achieve primary health care (PHC) - based universal health coverage (UHC), while at the same time facing an increase in non-communicable diseases as Ethiopia transitions into a middle-income country, while still combating illnesses due to communicable diseases. The goal to achieve UHC while tackling an increasing double burden of disease requires significant financial resources. Transitioning to middle-income status may also affect Ethiopia’s potential to mobilize the same historic level of external resources. Under current external financing context, the Health Sector Transformation Plan (HSTP 2015/16-2019/20) estimated resource gaps ranging from 10% (under low cost and high resource scenarios) to 44% (under high cost and low resource projection scenarios)of the total health resource need (FMOH 2015).

A recent review of Ethiopia’s 1998 Health Care and Financing Strategy documented the potential resource gap and initiatives to narrow such a gap (Alebachew, Yusuf, Mann, Berman, et al. 2015). The need to explore options and enhance DRM is one of the pillars of the revised national health care financing strategy (still in draft form). Increasing tax revenues through innovative financing for health, remittances, funds from public private partnerships, public bonds, and philanthropic gifts are some of the options highlighted in the draft strategy.

The draft national health care financing strategy expects for each level of government to increase the allocation of funds from their budget to the health sector. It also stipulates that exempted services, which are wholly or partly subsidized by public funds, will increasingly rely on domestic sources of financing. Assessing the current financing of exempted services and exploring mechanisms for increasing domestic funding sources is needed for future sustainability of offering such services without user charges. In this regard, the major contribution of this study is to estimate the possible financial requirements of replacing external financial support with domestic resources over the medium and long term for exempted services. This paper forecasts the total cost required to finance exempted services to meet HSTP targets and examines the fiscal space available at all levels of government to mobilize such funding. A forthcoming policy paper will explore the options available to finance exempted services in the medium and long term and recommend appropriate financing mechanisms for Ethiopia based on consultations with the FMOH and other relevant stakeholders.

The objective of this paper is to provide relevant analysis and recommendations to assist Ethiopia’s Ministry of Health (MOH) to mobilize required funding, assuring the sustainability of essential priority health services in a changing health care financing environment characterized by declining external support which will need to be replaced by increased domestic resources over the medium and long term.

2 Background


The specific objectives of this paper are:

• Estimating the current and future financial requirement for delivering exempted health services (until 2019/2020), based on the medium term target set for service delivery and the unit costs estimated in the PHC costing study (Berman et al. 2016a; Berman et al. 2016b);

• Analyzing the current financing mechanism of exempted services and its sustainability, strengths and gaps;

• Conducting fiscal space analysis at different levels of government to explore the potential of different levels of government to increase funding from available total resources to exempted services (e.g., drugs and supplies costs and human resource costs for providing such services).

3 Methodology


2. Methodology

2.1. Data Sources

This paper used secondary sources to inform its analysis. There were two major primary sources for the costing projections: the PHC unit cost study (Berman et al 2016a; Berman et al 2016b) and the HSTP (FMOH 2015). The PHC unit cost study provided the unit costs for human resources, commodities and indirect costs for each of the exempted services for a sample of health centers and primary hospitals. The costing and financing background documents of HSTP provided the total eligible projected population and coverage targets for each of the exempted services. These two data sets were used to project the total costs required to finance exempted services as per the HSTP targets.

The study also used budget and expenditure data generated from the expenditure accounts database specifically for this study from federal, regional, and woreda levels from the Ministry of Finance and Economic Cooperation (MOFEC) from 2012/13 to 2015/16. This data was used to conduct the fiscal space analysis and to analyse the allocation of resources to different budget categories for health. Data from the recent macro-economic fiscal framework (MEFF) projection, carried out by MOFEC, was used to show potential DRM.

2.2. Data Analysis

A resource gap analysis was conducted based on the estimated future costs of exempted services (in total and by cost component – human resources, drugs and supplies, and indirect costs) and the resources mobilized under different scenarios produced from a fiscal space analysis. Exempted service costs are estimated using the unit cost of each exempted service, or the cost of providing a specific exempted service to one patient, according to the PHC cost study and the HSTP targets for service coverage for each of the exempted services.

The costing data used were collected at the primary level where most of the exempted services are provided. Thus costs of exempted services provided in hospitals above primary hospital are not included in these estimates. While the total cost was calculated, emphasis was on the cost of the commodities, as this is the main item that largely depends on external financing, and hence the major concern for sustainable financing.

The fiscal space analysis conducted mainly focuses on three of the five key ways to improve fiscal space for health: 1) increasing DRM for health, 2) allocating more of the national budget towards the health sector, and 3) macroeconomic conditions (Powell-Jackson et al. 2012). The availability of discretionary spending over salaries and recurrent budget was analysed at different levels of government to provide guidance on the degree to which different levels of government have flexible resources to finance emerging priorities – e.g., availability of fiscal space.

We used two scenarios to estimate the projected health resource envelope during the HSTP period (2015/16-2019/20) with reference to the Macro-economic Fiscal framework (MEFF) projections of total national resources. The first scenario assumes that the current level of allocation to health (6% from the national budget) will be maintained in the next five years. In addition, the government will allocate additional resources to subsidize the social health insurance and community based health insurance schemes as per the target set in the HSTP. Thus, the first scenario is referred to as the status quo or the current allocation to the health sector plus health insurance subsidization, which is 8% of the national budget. The second scenario is based on the HSTP target to increase the health sector budget allocation from 6% to 10% by 2020, without including insurance subsidization. Total health resource availability was estimated based on the current allocation trend (status quo) to the health sector and set HSTP target of government budget going to the health sector.

4 Types of exempted services provided in Ethiopia


3. Types of exempted services provided in Ethiopia

3.1. Description of essential health services package (EHSP)

The essential health servicespackage (EHSP) defines exempted services as services that should be provided at no charge to all mainly in public facilities since they address priority public health goals (Ministry of Health 2005). These services are free at all public health care delivery levels. It also states that the Ethiopian government will mobilize the required external aid and domesticresources for these services.

The EHSP constitutes the lower layer and the middle layer of health services (Figure 1). The lowest layer is selected public health services that need to be provided to everyonefree of charge, or exempted services. According to the FMOH standards, exempted services include the expanded program on immunizations (EPI), antenatal care (ANC), treatment for tuberculosis (TB)(sputum diagnosis, drugs, and follow-up), family planning, post-natal care (PNC), leprosy, delivery, HIV care(voluntary counseling and testing and prevention of mother to child transmission), and treatment for malaria (Ministry of Health 2005).The middle layer represents the part of the EHSP that is offered on a cost-sharing basis, or partially subsidized by the Ethiopia government. These services often include outpatient and inpatient services (that are not exempted services) related to communicable and non-communicable diseases at the primary health care level. The top layer represents services that are outside of the EHSP (commonly referred to as high cost services-e.g. cancer tratement, dialysis) which are provided at full cost recovery, or the costs of providing such service arecharged to the patient receiving that service.

Figure 1: Financing arrangement of the health sector including the EHSP

Source: FMOH (2005)

There are some minor variations among regions on the list of exempted services provided to the public. However, regional Health Care Financing Reform proclamations have standardized lists of exempted services within regions.

High Cost Services: on cost recovery (top layer)

Essential Health Services Package: on cost sharing (middle layer)

Exempted Services: free of charge (lower layer)

5 Types of exempted services provided in Ethiopia


3.2. HSTP and UHC targets for exempted services

HSTP prioritizes and has set coverage targets for exempted services as a means to achieve UHC by 2019/20. The targets used to estimate the cost of exempted services by 2019/20 are:

• Increase contraceptive prevalence rate (CPR) from 42% to 55%;

• Reduce unmet need for family planning from 24% to 10%;

• Increase proportion of women having at least 4 ANC visits from 68% to 95%;

• Increase deliveries attended by skilled health personnel from 60% % to 90%;

• Increase PNC coverage from 90% to 95%;

• Increase the proportion of HIV positive pregnant mothers who received ART to prevent MTCT of HIV from 59% to more than 95%;

• Reduce prevalence of obstetric fistula to less than 1% of all obstructed labor;

• Increase the proportion of pentavalent 3 immunization from 94% to 98%, measles immunization from to 90% to 95% and fully immunized children, from 86% to 95% respectively;

• 90% of all people living with HIV will know their HIV status; 90% of all people with diagnosed HIV infection will receive sustained antiretroviral therapy; 90% of all people receiving antiretroviral therapy will have viral suppression;

• Increase TB case detection rate from 61% to 87%; TB cure rate from 78% to 90%; and

• Achieve and maintain universal coverage of malaria control strategies (vector control, diagnosis and treatment); sub-national elimination of malaria in 50 selected woredas. (FMOH 2015)

Exempted services are currently being financed through a combination of different sources and channels of funding1. Channel 1 finances the human resources and indirect costs of all health services including exempted services and comes from the central treasury in the way of fiscal transfers (Alebachew, Yusuf, Mann, Berman, et al. 2015). All exempted service commodities – medicines and medical supplies – with the exception of deliveries, are being financed through external funding, which includes support from Global Alliance for Vaccine and Immunization (GAVI), the Global Fund, and different bilateral funding sources mainly using channel 2, with PEPFAR using channel 3. The commodities cost of deliveries is by and large being financed through facilities’ internally generated resources due to absence of a third-party financer (Alebachew et al. 2017). External funding through channel 3 also finances technical assistance and program management inputs for some of the implementing partners. The realization of the above HSTP targets therefore largely depends on the availability of resources from development partners for the commodities needed, as all other costs are currently being financed through the treasury from internal revenues.

1 There are three disbursement channels practiced in Ethiopia. Channel 1 refers to those funds coming through the central treasury MOFEC and its regional and woreda counterparts. Funds disbursed through channel 2 directly go to line ministries like MOH and their regional and woreda health bureaus counterparts. Funds disbursed through channel 3 go directly to implementing partners (non-governmental organizations and contracting agencies) without using the government modalities. (Alebachew, Yusuf, Mann & Berman 2015)

6 Estimating the costs of exempted services


4. Estimating the costs of exempted services

4.1. Findings of the PHC unit cost study

The cost of implementing the HSTP was estimated using the OneHealth tool, which applies a normative costing approach. This approach typically uses international standards or in-country experts to determine health service unit costs because there were no Ethiopian-specific unit costs estimates. Since that time, in a new study was conducted that estimates the actual unit costs of exempted services at health center and primary hospital levels, referred to as the PHC cost study. This costing is based on actual commodities consumed at each level of health facility, human resource costs, and other facility overhead costs (e.g., electricity and running water) for each exempted service. Further details of the methods used to estimate these costs are explained in Berman et al (2016a).

Table 4.1. Unit cost of exempted services at primary hospitals

Service GroupCosting

service unitMean (Birr)

% for HR

Costs

% for Drugs

% Indirect Costs

Expanded Program on Immunization (EPI)

Per vaccination 190 55 22 24

Pentavalent (DPT-HepB-Hib) vaccination Per vaccination 299 45 36 20

Pneumococcal vaccination Per vaccination 240 43 38 19

Rotavirus vaccination Per vaccination 270 51 26 23

Measles vaccination Per vaccination 242 61 10 29

BCG vaccination Per vaccination 162 67 4 29

Family Planning Per acceptora 959 23 71 9

Antenatal Care Per 4 Visits 726 68 3 30

Delivery Per delivery 1076 62 33 5

Postnatal Care Per visit 191 62 10 27

Tuberculosis treatment Per cased 1811 15 86 5

Anti-Retroviral Therapy (ART) Per case/yeare 1917 10 86 4

Malaria treatment Per casef 303 37 43 20

Source: Berman et al (2016b)Note: Estimates exclude extreme values that biased the mean upwards. Some percentages add up to more than 100% due to rounding.a The first time an individual between 15-49 years receives a modern contraceptive service in the year or the average annual cost for family planning per acceptor.b At least four ANC visits in a year.c A PNC visit within 24 hours of a newborn’s birth in a year.d Tuberculosis case (all forms) that was registered at the health center for a year.e A person living with HIV/AIDS (adult or child) that received ART for a year, with assumption that an individual did not stop treatment or miss regimens throughout the year.f New malaria case (complicated or severe) registered at the health center during a year.



The variation among facilities on unit costs are by and large explained by difference in utilization of the service by the population as well as the readiness and ability of facilities to provide an exempted service. These unit costs were reviewed and accepted by the MOH and are being used for additional analyses such as cost efficiency analyses for health centers and primary hospitals. The estimated unit costs for exempted services are shown in Table 4.1 for primary hospitals and Table 4.2 for health centers.

Table 4.2. Unit cost of exempted services at health centers

Service GroupCosting service

unitMean (Birr)

% for HR Costs

% for Drugs

% Indirect Costs

Expanded Program on Immunization (EPI)


Pentavalent (DPT-HepB-Hib) vaccination


Pneumococcal vaccination Per vaccination 120 33 56 10

Rotavirus vaccination Per vaccination 92 43 44 13

Measles vaccination Per vaccination 70 63 15 22

BCG vaccination Per vaccination 65 68 9 24

Family Planning Per acceptora 552 14 78 8

Antenatal Care Per 4 Visits 256 70 5 25

Delivery Per delivery 705 58 38 4

Postnatal Care Per visit 74 59 17 24

Tuberculosis treatment Per cased 1331 14 87 3

Anti-Retroviral Therapy (ART) Per case/yeare 1316 8 88 4

Malaria treatment Per casef 134 68 25 18

Source: Berman et al (2016a)Note: Estimates exclude extreme values that biased the mean upwards. Some percentages add up to more than 100% due to rounding.a The first time an individual between 15-49 years receives a modern contraceptive service in the calendar year (from HMIS) or the average annual cost for family planning per acceptor.b At least four ANC visits during EFY 2006.c A PNC visit within 24 hours of a newborn’s birth during EFY 2006.d Tuberculosis case (all forms) that was registered at the health center for EFY 2006 (from HMIS).e A person living with HIV/AIDS (adult or child) that received ART for EFY 2006 (from HMIS), with assumption that an individual did not stop treatment or miss regimens throughout the year.f New malaria case (complicated or severe) registered at the health center during EFY 2006 (from HMIS).

The PHC cost study was unable to estimate all of the FMOH standard exempted services. The services that were included, and therefore included in our cost estimates, are different types of vaccinations, family planning services, ANC, deliveries, PNC, tuberculosis treatment (all forms), antiretroviral treatment (ART) for HIV/AIDS (for an adult or child), and malaria treatment. Due to the exclusion of some services from the total exempted service cost estimates, the total cost estimates will be slightly underestimated.

Currently, the share of total costs estimated for human resources and indirect costs are largely financed by government allocation through channel 1 block grants, while the cost of commodities as well as the costs of TA and management support from implementing partners for exempted services, with the exception of deliveries,



are financed by external financing. Assuring the future financing of exempted services, and specifically the drugs and supplies component of them, is critical for the future sustainability of these services and to ensure that they continue to be provided for free as Ethiopia focuses on achieving UHC.

4.2. Target population

The eligible population for each exempted service was extracted from the HSTP projections, and over the period 2015/16 to 2019/20 are estimated to be the following:

• 3.4 million children needing immunization services;

• 20 million women looking for family planning services;

• 3.4 million women needing Antenatal and postnatal care and facility deliveries

• 258,000 people requiring TB services;

• 683,900 people ART services; and

• 2.72 million people looking for malaria treatment. (FMOH 2015)

Annual targets are set in the HSTP to increase the coverage of service delivery based on the eligible population. During the HSTP period, not all eligible people are expected to be covered for some of the exempted services.

Thus, the estimated number of people receiving an exempted service (based on target coverage goals) over the 5-year time period (2015/16-2019/20) is as follows:

• 3.1 million children accessing immunization services;

• 11 million women accessing family planning services;

• 3.1 million pregnant women accessing antenatal and postnatal care

• 3 million women delivering in heath facilities;

• 224,256 people require TB service;

• 611,190 people need ART services; and

• 2.72 million people accessing malaria related treatment. (FMOH 2015)

The target population for each of the exempted service by year is shown Table 4.4. The target population in Table 4.4 is used to estimate the cost of exempted services combined with the unit cost estimates from the PHC cost study.



Table 4.3: HSTP eligible population for selected exempted services 2015/16-2019/20

Type of Exempted

service

Eligible Population

Eligible Population

Year 2015/16 2016/17 2017/18 2018/19 2019/20

Total Population 92,148,192 94,182,872 96,165,368 98,078,440 99,908,912

EPI

Pentavalent (DPT-HepB-HIB)

Children < 1 2,915,239 2,979,609 3,042,328 3,102,851 3,160,760

Pneumococcal Children < 1 2,915,239 2,979,609 3,042,328 3,102,851 3,160,760

Rotavirus Children < 1 2,915,239 2,979,609 3,042,328 3,102,851 3,160,760

Measles Children < 1 2,915,239 2,979,609 3,042,328 3,102,851 3,160,760

BCG Births 3,098,022 3,166,428 3,233,080 3,297,397 3,358,938

Family Planning Women of reproductive

age18,464,655 18,872,364 19,269,616 19,652,958 20,019,748

Antenatal Care Pregnant women

3,098,022 3,166,428 3,233,080 3,297,397 3,358,938

Delivery Pregnant women

3,098,022 3,166,428 3,233,080 3,297,397 3,358,938

Postnatal Care Pregnant women

3,098,022 3,166,428 3,233,080 3,297,397 3,358,938

Tuberculosis Treatment

Number of New TB cases to be detected (all

forms)

237,742 242,992 248,107 253,042 257,765

Anti-Retroviral Therapy

ART Need Adult

554,300 567,400 582,700 591,700 597,500


ART Need Children

143,200 128,200 113,500 99,400 86,400

Malaria Treatment

Number of laboratory confirmed

malaria cases (in million)

4.66 4.4 3.87 3.31 2.72

Source: Estimates by authors using data from Federal Minstry of Health (2015).



Table 4.4: HSTP target population for exempted services 2015/16-2019/20

Exempted services

Unit of measurement

2015/16 2016/2017 2017/18 2018/19 2019/20

EPI


Children < 1 2,740,325 2,890,212 2,920,635 3,009,765 3,097,545

Pneumococcal Children < 1 2,419,648 2,616,402 2,738,095 2,885,651 3,034,330

Rotavirus Children < 1 553,895 1,156,085 1,764,550 2,389,195 3,034,330

Measles Children < 1 2,652,867 2,829,365 2,859,788 2,916,680 3,002,722

BCG Births 2,912,141 3,071,426 3,103,756 3,198,475 3,291,759

Fully Immunized children

Children < 1 2,536,258 2,651,852 2,768,518 2,885,651 3,002,722

Family Planning (CPR)

Women of repro-ductive age

7,755,155 8,870,011 9,576,999 10,278,497 11,010,861

Antenatal Care Pregnant women 2,323,517 2,533,143 2,748,118 2,967,657 3,190,991

Delivery Pregnant women 2,044,695 2,279,828 2,521,802 2,769,814 3,023,044

Postnatal Care

Pregnant women 2,819,200 2,913,114 3,006,764 3,099,553 3,190,991

Tuberculosis Treatment

Number of New TB cases to be de-tected (all forms)

187,816 196,823 205,929 215,086 224,256


Number of PLHIV (Adult) to receive

ART 454,526 476,616 501,122 520,696 537,750


Number of PLHIV (children) to receive ART

57,280 64,100 68,100 69,580 73,440

Malaria Treatment

Laboratory confirmed malaria cases (in million)

4.7 4.4 3.9 3.3 2.7

Source: Estimates by authors using data from FMOH (2015).

4.3. Estimated cost of commodities for exempted services

As stated above, the unit cost of exempted health services at health center and primary hospital levels was calculated in the unit cost study conducted in 2015/16. This unit cost study disaggregated the unit cost into three categories: human resources, drugs and supplies, and indirect costs. Based on the share of the drugs and supplies of the total unit cost at health center and primary hospital levels, the unit cost of drugs and supplies for each exempted service by health facility is presented in Table 4.5 in current Ethiopian Birr (ETB).



Table 4.5 Unit cost for drugs and supplies of selected exempted services in ETB

Type of Exempted service

Unit of measurement

Drugs and Supplies Unit Cost in ETB

Health center Hospital

EPI


Per vaccination 72.37 107.64

Pneumococcal Per vaccination 67.2 91.20

Rotavirus Per vaccination 40.48 70.20

Measles Per vaccination 10.5 24.20

BCG Per vaccination 5.85 6.48

Family Planning Per acceptor 430.56 680.89

Antenatal Care Per 4 Visits 12.8 21.78

Delivery Per delivery 267.9 355.08

Postnatal Care Per visit 12.58 19.10

Tuberculosis Treat-ment

Per case 1,157.97 1557.04

Anti-Retroviral Therapy (adult)

Per case/per year 1,158.08 1,648.62

Anti-Retroviral Therapy (child)

Per case /per year 1,158.08 1,648.62

Malaria Treatment Per case 33.5 130.29

Source: Authors estimates using data from Berman et al (2016a) and Berman et al (2016b).

High variability in the cost of drugs and supplies is evident across each type of exempted service. According to the recent PHC costing study, the cost of drugs and supplies constitute as low as 3% of the total cost in the case of antenatal care provided at primary hospitals and 5% of the total cost for antenatal care provided at health centers, while drugs and supplies constitutes above 85% of the total cost for TB and ART treatments for both health facilities (Berman, P; Alebachew, A; Mann, C; Agarwal, A; Abdella 2016b; Berman, P; Alebachew, A; Mann, C; Agarwal, A; Abdella 2016a).

Another variable critical in estimating the cost of exempted services is the percentage of the population using health centers and hospitals to receive exempted services from the projected eligible beneficiaries. This necessitates apportioning the target population’s use of services between health centers and primary hospitals. Based on evidence of service utilization in CBHI schemes between health centers and primary hospitals, it is estimated that about 90% of the target population would get the services from health centers while the remaining 10% of the population would go and get the services at primary hospital level (Alebachew et al. 2017)2.

The following sections present and discuss the cost of exempted health services at health center and primary hospital levels.

2 A recent analysis of the HMIS data from EFY 2006, conducted by the authors, shows that 9% of exempted services are provided by all hospitals and the remaining 91% to health centers which confirms that the assumption used is accurate.



4.4. Health Center Exempted Service Commodity Costs

Based on the assumptions noted above, the estimated cost of drugs and supplies at the health center level is presented in Table 4.6.

Table 4.6. Estimated cost of commodities for exempted services at the health center level (million ETB)


Total Estimated Cost (Million ETB)Grand Total

% share2015/16 2016/17 2017/18 2018/19 2019/20

1 EPI 385.40 431.51 463.48 502.00 541.52 2,384.30 8.3%


178.48 188.25 190.23 196.03 201.75 967.93 3.4%

Pneumococcal 146.34 158.24 165.60 174.52 183.52 840.55 2.9%

Rotavirus 20.18 42.12 64.29 87.04 110.55 332.18 1.2%

Measles 25.07 26.74 27.02 27.56 28.38 147.61 0.5%

BCG 15.33 16.17 16.34 16.84 17.33 96.04 0.3%

2 Family Planning

3,005.15 3,437.16 3,711.13 3,982.96 4,266.75 18,445.90 64.3%

3 Antenatal Care 26.77 29.18 31.66 34.19 36.76 158.55 0.6%

4 Delivery 493.00 549.69 608.03 667.83 728.89 3,058.81 10.7%

5 Postnatal Care 31.92 32.98 34.04 35.09 36.13 170.17 0.6%

6 Tuberculosis Treatment

195.74 205.12 214.61 224.16 233.71 1,074.27 3.7%

7 Anti-Retroviral Therapy (adults and Children)

533.44 563.57 593.28 615.23 637.03 2,945.10 10.3%


(adults)473.74 496.76 522.31 542.71 560.48 2,598.24 9.1%


(Children)59.70 66.81 70.98 72.52 76.54 346.86 1.2%

8 Malaria Treatment

140.50 132.66 116.68 99.80 82.01 588.71 2.1%

Total cost 4,811.92 5,381.89 5,772.92 6,161.25 6,562.79 28,690.77 100%

To provide exempted health services for 90% of the target population, 4.8-6.5 billion ETB per annum and a total of 28.7 billion ETB is required to cover the cost of drugs and supplies for the exempted services that are offered at health centers during the HSTP period. The drugs and supplies for family planning account for a majority of the total cost of exempted drugs and supplies, accounting for more than 64%of the total. This is followed by drugs and supplies for delivery; and ART, accounting for 10.6% and 10.3% of the total cost respectively. Immunizations



altogether constitutes about 8.3% of the total drugs and supplies cost for exempted services offered at health centers.

4.5. Primary Hospital Exempted Service Costs

The estimated cost of drugs and supplies for each exempted health service at primary hospital level is shown in Table 4.7.

Table 4.7. Estimated cost of commodities for exempted services at the primary hospital level (million ETB)

Type of Exempted

service


% Share2015/16 2016/17 2017/18 2018/19 2019/20

1 EPI 63.76 71.92 77.73 84.62 91.72 396.45 7.9%

Pentavalent (DPT-HepB-

HIB)29.50 31.11 31.44 32.40 33.34 159.25 3.2%

Pneumococcal 22.07 23.86 24.97 26.32 27.67 126.26 2.5%

Rotavirus 3.89 8.12 12.39 16.77 21.30 63.35 1.3%

Measles 6.42 6.85 6.92 7.06 7.27 35.94 0.7%

BCG 1.89 1.99 2.01 2.07 2.13 11.65 0.2%

2 Family Planning

528.04 603.95 652.09 699.85 749.72 3,238.40 64.7%

3 Antenatal Care

5.06 5.52 5.99 6.46 6.95 29.98 0.6%

4 Delivery 72.60 80.95 89.54 98.35 107.34 450.06 9.0%

5 Postnatal Care

5.38 5.56 5.74 5.92 6.09 28.71 0.6%


29.24 30.65 32.06 33.49 34.92 160.46 3.2%


84.38 89.14 93.84 97.31 100.76 465.72 9.3%


(adults)74.93 78.58 82.62 85.84 88.65 410.87 8.2%


(children)

9.44 10.57 11.23 11.47 12.11 54.85 1.1%

8 Malaria Treatment

60.72 57.33 50.42 43.13 35.44 248.93 5.0%

Total cost 849.18 945.03 1,007.42 1,069.13 1,132.94 5,003.70 100%



Table 4.8: Total cost of commodities for exempted services both at health center and primary hospital levels, 2015/16-2019/20 (million ETB)


Total Estimated Cost (Million ETB) Grand Total

% share

2015/16 2016/17 2017/18 2018/19 2019/20

1 EPI 449.16 503.44 541.21 586.62 633.24 2,713.66 8.1%


207.98 219.36 221.66 228.43 235.09 1,112.52 3.3%

Pneumococcal 168.41 182.10 190.57 200.84 211.19 953.11 2.8%

Rotavirus 24.07 50.23 76.67 103.82 131.85 386.64 1.1%

Measles 31.49 33.58 33.95 34.62 35.64 169.28 0.5%

BCG 17.22 18.16 18.35 18.91 19.46 92.11 0.3%

2 Family Planning

3,533.19 4,041.11 4,363.21 4,682.81 5,016.47 21,636.81 64.2%

3 Antenatal Care 31.83 34.70 37.64 40.65 43.71 188.53 0.6%

4 Delivery 565.60 630.64 697.58 766.18 836.23 3,496.23 10.4%

5 Postnatal Care 37.30 38.55 39.79 41.01 42.22 198.87 0.6%


224.98 235.77 246.68 257.65 268.63 1,233.71 3.7%


617.82 652.72 687.13 712.54 737.79 3,407.99 10.1%

Anti-Retroviral Therapy (Adults)

548.67 575.34 604.92 628.55 649.14 3,006.62 8.9%


(Children)69.14 77.38 82.21 83.99 88.65 401.37 1.2%

8 Malaria Treatment

201.21 189.99 167.10 142.92 117.45 818.67 2.4%

Total cost 5,661.10 6,326.91 6,780.33 7,230.39 7,695.73 33,694.47 100%

The total cost required to cover the drugs and supplies of exempted services is lower for primary hospitals compared to health centers due to the assumption that only 10% of the population would access exempted services from this health facility type. Annually, the cost of drugs and supplies for exempted services to be provided in primary hospitals ranges between838 million-1.1 billion ETB, and this equates to a total of 5 billion ETB over the HSTP period. This estimated cost, however, does not reflect the cost of exempted service commodities provided at secondary and tertiary hospitals. It is important to note that this assumption depends in part on demand behaviour of consumers. In the case of exempted services, with the exception of deliveries, communities prefer to access these services from the closer facility, which is mostly health centers.

Total cost of drugs and supplies for exempted health services (both health centers and primary hospitals)About 5.6-7.6 billion ETB per annum or a total of 33.7 billion ETB is required to cover the total cost of drugs and



supplies for exempted health services during the HSTP period at health centers and primary hospitals (Table 4.8). Of this, the cost of drugs and supplies for family planning takes the lion share (63%) followed by delivery and ART treatment, each constituting about 10%, while immunizations account for only 8% of the total cost.

4.6. Total exempted service costs: human resources, commodities and indirect costs

The provision of exempted health services also requires human resources and other indirect operational costs in addition to drugs and supplies. Annually, 9-12 billion ETB or a total 53 billion ETB is required to finance exempted services (including human resources, indirect costs, and drugs and supplies) during the HSTP period (Table 4.9). Of this 58.5 billion ETB, 33.7 billion ETB (62.8%) is for drugs and supplies, which to date has been mostly financed by development partners, while the remaining 19.7 billion ETB (37.2%) would be financed by the government to cover human resource and indirect costs.

Table 4.9: Estimated total cost of exempted services (human resources, commodities and indirect costs), 2015/16-2019/20 (million ETB)



% share

2015/16 2016/17 2017/18 2018/19 2019/20

1 EPI 1,229.17 1,370.43 1,462.81 1,575.93 1,693.67 7,332.01 12.5%


400.09 421.97 426.41 439.43 452.24 2,140.14 3.7%

Pneumococcal 319.39 345.37 361.43 380.91 400.53 1,807.62 3.1%

Rotavirus 60.82 126.94 193.75 262.33 333.17 977.01 1.7%

Measles 231.33 246.72 249.37 254.33 261.84 1,243.60 2.1%

BCG 217.54 229.44 231.85 238.93 245.89 1,163.64 2.0%

2 Family Planning 4,596.48 5,257.26 5,676.29 6,092.07 6,526.14 28,148.23 48.1%

3 Antenatal Care 704.03 767.54 832.68 899.20 966.87 4,170.32 7.1%

4 Delivery 1,517.37 1,691.86 1,871.43 2,055.48 2,243.40 9,379.54 16.0%

5 Postnatal Care 241.61 249.65 257.68 265.63 273.47 1,288.04 2.2%


258.98 271.40 283.95 296.58 309.23 1,420.14 2.4%


704.30 744.08 783.31 812.28 841.06 3,885.02 6.6%

Anti-Retroviral Therapy (adults) 625.47 655.87 689.59 716.53 740.00 3,427.47 5.9%


(children)78.82 88.21 93.71 95.75 101.06 457.55 0.8%

8 Malaria Treatment

703.19 663.96 583.98 499.48 410.45 2,861.06 4.9%

Total cost 9,955.12 11,016.18 11,752.13 12,496.64 13,264.28 58,484.36 100%



As shown in Table 4.9 and Figure 2, the major cost drivers for exempted services at the primary care level are family planning, delivery and immunization of children. The three services altogether account for about 76.7% (44.86 billion birr) of the total cost of exempted health services and 82.5% (26.24 billion birr) of the total cost of commodities from 2015/16-2019/20. Family planning alone accounts for 48% (28.15 billion birr) of the total cost and 64% (21.64 billion birr) of the total commodities cost for the HSTP period. The share of ARV is only 10% (3.4 billion birr) of the total cost of commodities like that of delivery although its unit cost is much higher that delivery. This is mainly due to the small number of target population in case of ARV (about 550,000) compared to delivery, which will serve about 2.7 million pregnant women at the end of HSTP period. In summary, the projected commodity cost for all exempted services accounted for about 57.6% (33.7 billion birr) of the total cost showing that the sustainability of exempted services depends on the ability of the country to finance these costs if the flow of external resources declines.

Figure 2: Percent share of different exempted services by total cost and total commodity cost

17 Analysis of fiscal space at different levels of government administrations in Ethiopia


5. Analysis of fiscal space at different levels of government administrations in Ethiopia

There are five broad areas identified in the literature as the potential sources of fiscal space in the health sector (Novignon & Nonvignon 2015; Powell-Jackson et al. 2012). These are (i) conducive macroeconomic conditions including improving government revenue and economic growth; (ii) making health a priority in government budgets; (iii) increasing specific resources (such as taxes) to the health sector; (iv) health grants and foreign aid, and (v) increasing efficiency of existing government health outlay. It should be noted that with the exception of the last two options, the other sources are mostly outside the direct control of the health sector and are linked to general macroeconomic policies.

The Ethiopian FMOH has focused on providing evidence to determine where efficiency gains can be made. At the federal level, the FMOH is examining the efficient use of resources among different departments within the FMOH, and where improvements are possible. Recent studies by the Harvard T.H. Chan School of Public Health and the FMOH have provided initial evidence on inefficiencies within the primary care system and potential areas to improve the efficient use of resources where the health sector has direct control over (Mann et al. 2017; Mann et al. 2016). These studies provide initial evidence and potential means to reduce resource inefficiency that potentially frees-up resource that can be re-invested into the health sector. This is particularly important because most countries in Africa face macroeconomic challenges that limit the extent to which budgetary allocations to the health sector can be increased.

5.1. Fiscal space analysis at different level of government

Government health spending is part of overall fiscal policy, which consists of managing constraints and priorities to achieve policy objectives. The constraints and priorities together determine the fiscal space for health, or the availability of budgetary room that allows a government to provide resources for expanding or sustaining coverage without jeopardizing the sustainability of a government’s financial position (Heller 2005). Fiscal space defines the boundaries, or envelope of the resources potentially available for achieving and sustaining UHC. Fiscal space serves as a reality check for what is feasible in terms of raising revenue for UHC, and what can be achieved within a given spending level.

The health sector is in a better position to negotiate during the budget process if there is a clear understanding of how the overall budget is formed and priorities are set. It is also helpful to identify specific spending areas that could feasibly be reallocated to health because they are inefficient or exacerbate inequities.

Prioritizing government budget for health, along with macroeconomic growth, has been important in enabling countries to expand population coverage, improve service delivery, and provide better financial protection (Maeda et al. 2014). The scope for increasing the share of the total budget allocated to health will be limited in part by the share of the budget that is discretionary, or not already accounted for by mandatory expenditures. Wage spending in particular is a nondiscretionary expenditure that often crowds out government spending on other priority areas.

Ethiopia was able to allocate about 8% of its total budget to health when all the three levels of governments (federal, regional and woreda) are combined from 2012/13 to 2015/16 (Table 5.1). Federal government allocated about 5% of its budget to health, as most of the health service delivery responsibilities are given to regions and woredas. On the average, regions and woredas allocated 10% and12%, respectively, of their budgets to the health sector, including the Promoting Basic Services (PBS) support, which is allocated to lower levels of government as part of the block grant. This clearly shows the lower level government hierarchies are investing more of their own resources on health than the higher levels.



Table 5.1: The share of health budget from the total government budget at different administrative levels

Levels 2012/13 2013/14 2014/15 2015/16Average

allocation

Federal 1% 9% 7% 4% 5%

Regional 11% 10% 9% 9% 10%

Woreda 8% 11% 15% 16% 12%

Total 5% 9% 9% 8% 8%

Source: MOFEC (2017)

Ethiopia has been implementing fiscal decentralization for more than a decade. This involved clear definition of responsibilities and expenditures assignments as well as defining federal, regional and woreda revenue generation assignments. Fiscal decentralization with the idea of transferring authority and resources to local levels of government brings decisions closer to the point of service to better match resource allocations and local needs. It is important to note that the regional and woreda “budgets” are predominantly fiscal transfers from the federal government in the form of block grants, which are not “tied” but contain a large amount of non-discretionary spending obligations (e.g., salaries for current staff). The share of total recurrent budget from their respective total resources available show that woreda resources are more “tied” than federal and regional governments, as most of their resources goes to recurrent budget, especially for salaries. On the other hand, federal and regional governments have better discretionary resources that can be used for development projects.

When we further look into the composition of this budget by recurrent and capital expenditure, it is clear that federal and regional levels are allocating more of their resources on capital investments (discretionary spending), while woredas spend more on recurrent expenditure, which are non–discretionary (Figure 3). In 2015/16, the federal government invested 59% of its resources on capital projects while the remaining was spent on recurrent budget. The respective percentage shares of capital budget for regions and woredas was 64% and 17% respectively. This clearly shows that fiscal space at woreda level is very limited to accommodate any additional investments.

Figure 3: The share of capital budget from the total government budget




Table 5.2: Composition of total budget at different levels

Salary

2012/13 2013/14 2014/15 2015/16

Federal 10% 10% 12% 12%

Regional 14% 12% 13% 17%

Woreda 42% 65% 63% 66%

Non-salary

2012/13 2013/14 2014/15 2015/16

Federal 20% 21% 25% 29%

Regional 17% 18% 18% 19%

Woreda 20% 20% 21% 25%

Total Recurrent Budget

2012/13 2013/14 2014/15 2015/16

Federal 29% 31% 37% 41%

Regional 30% 30% 30% 36%

Woreda 62% 85% 84% 91%

Budget for commodities as share of total health budget

2012/13 2013/14 2014/15 2015/16

Federal 4% 1% 1% 1%

Regional 8% 9% 9% 8%

Woreda 8% 8% 6% 4%


The budget in Ethiopia is made up of recurrent (composed of non-discretionary salary and other recurrent costs) and capital which can be allocated as per priority agreed. As shown in Table 5.2, the non-discretionary spending in Ethiopia is much higher at woreda levels (66% in 2015/16) and lowest at the federal level (12% in 2015/16). If we take the total recurrent budget as non-discretionary, this is equivalent to 41% at federal and 91% at woreda levels in 2015/16.Woredas have only about 9% of their total resources as discretionary to be allocated for priority development programs, including in health. This clearly shows that woredas have very limited resources to allocate for other priority services, including exempted services, unless the block grants transferred from federal to regions and then to woredas are significantly expanded. The room to shift more resources to health from other priority sectors is thus much narrower at the lower level.

It is important to note that different levels of government allocate resources for essential medicines (not for commodities for exempted services) for different levels of facilities on an annual basis. While it is estimated that health commodities account for about 25% of the total health costs, Table 5.2 shows that federal, regional, and woreda governments allocate 1%, 8% and 4% of their health budgets on commodities, respectively, which is far lower than what is required. All of government’s allocation to commodities is largely to support a portion of essential medicines and medical supplies for health facilities. However, this government financing remains supplementary rather than being the major financing for essential commodities. Essential commodities, however, are largely financed through retained funding of the facilities that are generated by facilities through fees-for-service, although there is also some external support. The non-essential medicines and medical commodities are financed by contributions from external sources.



Between 2012 and 2016, the federal government contributed on average about 25% of the total government health budget in the country, while regions contribute about 36% and woredas about 39% of the total government budget for the health sector over the past 4 years (see Table 5.3).

Table 5.3: The share of different levels of government contribution to the total government health budget

Budget for Health: in Million ETB Average share2012/13 2013/14 2014/15 2015/16

Federal 1,015.3 5,275.0 4,048.8 8,881.3

Regions 5,275.0 5,420.5 6,176.9 7,544.8

Woreda 4,048.8 4,886.1 7,762.7 11,365.1

Total 10,339.0 15,581.5 17,988.3 27,791.2

Percentage Share from the total health budget Average share2012/13 2013/14 2014/15 2015/16

Federal 10% 34% 23% 32% 25%

Regions 51% 35% 34% 27% 36%

Woreda 39% 31% 43% 41% 39%

Total 100% 100% 100% 100% 100%


5.2. Macro-economic fiscal projections

The macroeconomic and fiscal context dictates constraints on government spending, which is limited by how much income the government can earn by economic growth and revenue collection efforts, and how much additional financing it is willing and able to generate through borrowing, external assistance, and money creation. The transition from external financing, especially in countries like Ethiopia where there is limited fiscal space, will be gradual. Macroeconomic growth tends to lead to natural increases in government health spending, but there is a wide variation among governments on how effectively growth translates into government revenue, and ultimately, increased health spending (Tandon & Cashin 2010). The implications for the macroeconomic and fiscal context will be sensitive to the composition, stability, flexibility, and fungibility of aid, and the political and institutional environment in the country (Benedek et al. 2012). An important step in the health financing policy dialogue is to assess the allocation to health from the overall budget against policy priorities, and whether and how much scope exists for shifting a larger share of the budget to health if needed.

The recent macroeconomic and fiscal framework for Ethiopia shows that the share of domestic resources from the total available projected national budget will increase to 91.5% from the current 81% (Table 5.4). In nominal terms, this equates to an increase from 174.9 billion ETB in 2016 to about 544.8 billion ETB by 2022. At the same time, the share of foreign financing is projected to decline from 19% in 2016 to 8.5% in 2022, while its magnitude is expected to increase from 41.2 billion ETB to 51 billion ETB3. Of these total available resources, the Macro-Economic and Fiscal Framework (MEFF) projects that 63.2% of the total projected national budget will be financed by block grant transfers from federal to regions and woredas by 2022 (MOFEC 2016).

3 This figure on external resources might not account for all of the off-budget support that the health sector receives, possibly underestimating external resource available for the country.



Table 5.4: Projected Macroeconomic fiscal framework (MEFF) in nominal terms (2018-2022)

Total Projected National Budget

(billion ETB)

Domestic Resources

(billion ETB)

Foreign Finance

(billion ETB)

Share of domestic

resources (%)

Share of foreign

finance (%)

Actual 2012 132 111.7 20.2 84.62 15.30

2013 142.9 111.7 31.2 78.17 21.83

2014 145.5 111.7 33.8 76.77 23.23

2015 173.7 140 33.7 80.60 19.40

2016 216.2 174.9 41.2 80.90 19.06

Budget 2017 260.1 216.4 43.7 83.20 16.80

MEFF Forecast

2018 267.2 221.2 46 82.78 17.22

2019 334.8 286.3 48.5 85.51 14.49

2020 402.5 352.5 50 87.58 12.42

2021 486 437.2 48.8 89.96 10.04

2022 595.7 544.8 50.9 91.46 8.54

Source: MOFEC (2017) and Lakew (2017)

Figure 4 shows the share of foreign financing in relation to Ethiopia’s GDP and total resource envelope. External financing is expected to continue a declining trend as a percent of GDP and as a percent of the total national budget, despite an increase in nominal absolute values.

Figure 4: Share of foreign financing of the total budget as percent of GDP and total resources

2.7%3.6% 3.2% 2.6% 2.7% 2.4% 2.1% 1.9% 1.6% 1.4% 1.2%

15.3%

21.8%23.2%

19.4% 19.1%

16.8% 17.2%

14.5%

12.4%

10.0%8.5%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

0

10

20

30

40

50

60

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Actual Bgt. Forecast

Bill

ion

Birr

billion birr % of GDP % of total resources




5.3. Fiscal implication of financing cost of exempted commodities

By taking the above projections of revenue in MEFF and the target set by HSTP to increase the share of the national budget allocated to health to 10%, the projected resource availability from domestic sources to finance health can increase to about 55 billion ETB (Table 5.3). Alternatively, if the current trend of allocating 8% of the national budget to health continues in the next five years, the health sector will receive a budget of 44.6 billion ETB by 2022.

Table 5.5: projected allocation to health sector under two scenarios

YearTotal MEFF projected domestic resources

(billion ETB)

Estimated Allocation to health from total budget in billion ETB (historical

8% share)

Estimated Allocation to health from the total

budget in billion ETB (10% target from HSTP)

2017 216.4 17.31 21.64

2018 221.2 17.70 22.12

2019 286.3 22.90 28.63

2020 352.5 28.20 35.25

2021 437.2 34.98 43.72

2022 544.8 43.58 54.48


As noted in the previous section, the government is covering the cost of both human resources and indirect costs of exempted services by allocating resources as part of its recurrent budget at all levels of the system (channel 1). We can thus safely assume that in both scenarios (continuing 8% historical allocation to health, and achieving 10% target allocation from HSTP) the human resource and indirect costs of exempted services are included as part of the total resources available for the coming years. The major concern for the Ethiopian government in terms of sustaining the gains made through the provision of exempted services – reduced child and maternal mortality, reduced HIV/AIDS prevalence rate, reduced infections and death from malaria and TB as well as increasing utilization of family planning services – is ensuring availability of and hence financing of commodities. FMOH is therefore exploring how much it would take to replace the channel 2 and some of channel 3 external funding of commodities through domestic financing.

The unit costs of the primary health care (PHC) costing study (which doesn’t include secondary and tertiary hospital services), HSTP targets, trends in the share of health spending, and the MEFF projections are used to estimate the resource requirement for the government to cover the full cost of exempted services. Given that GAVI is likely to continue financing the cost of commodities for immunization for the next ten years for low income countries, commodity cost is categorized into two: one with immunization and one without.

The estimated cost of commodities per year ranges from 6.8-7.6 billion ETB with vaccines and from 6.2-7.2 billion ETB without vaccines. Figure 5 shows the commodity and total cost of exempted services as a per cent share of the total resource projections for the health sector under the status quo (current trend at 8% allocation of national budget to the health sector) and HSTP target (10% allocation of national budget to the health sector) scenarios, as well as a per cent of projected total domestic revenue. The share of estimated exempted service commodities cost from projected financing for health under the current 8% allocation to health ranges from 31-37% without vaccines, and from 33-41% including vaccines, and between 25-30% without vaccines and 27-33% including



vaccines under the higher HSTP scenario of 10% national budget allocation to health. This clearly shows that replacing external financed exempted service commodities costs by resources within the national treasury will be a daunting task and cannot be easily financed using the current sources and modalities of allocation, even without including the cost of partner’s management and technical assistance support.

Figure 5: The share of exempted service commodity and total costs of exempted services from projected allocation to health sector

36%

39%

68%

29%31%

55%

3% 3%5%

37%

41%

71%

30%33%

57%

3% 3%6%

31%33%

58%

25%27%

46%

2% 3%5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Total cost ofcommodities for

exempted servicesexcluding

immunization


exempted services

Total Exemptservice cost



immunization


exempted services




immunization


exempted services


As per cent of health projected 8 % budget As per cent of health projected 10 % budget As per cent of projected total domestic resource

2017

2018

2019

Source: MOFEC (2016); Berman, P; Alebachew, A; Mann, C; Agarwal, A; Abdella (2016a); Berman, P; Alebachew, A; Mann, C; Agarwal, A; Abdella (2016b)



If we take the total cost of exempted services, the analysis shows that by 2019/20, the government will have to spend 58% of what projections indicate as allocation to health to exempted services only if 8% of the government budget is allocated to health, and 46% in the case of 10% of government budget is allocated to health. When we analyse the cost of exempted services and their commodities in relation to the projected total domestic resources that Ethiopia is projected to mobilize, commodities account for about 3% and total exempted services account for about 5% of the total projected resources mobilized in country (see Figure 5).

With the current limited fiscal space as well as the current allocation trend in the health sector, an additional 6.2-7.6 billion ETB expenditures per year is not likely to be mobilized using the current sources of funding and/or with the current expenditure assignments between the federal and regional governments on public health functions, which gives this functions to regions. The government of Ethiopia should look into additional innovative financing mechanisms and/or shifting the expenditure assignment to the federal level where there is better fiscal space. A policy paper on exempted services that will explore these alternatives will follow this paper soon.

25 Limitations and Conclusions


6. Limitations

The projections of resource requirement for exempted services and their commodities used the unit prices and types of commodities at the time of the PHC costing study and does not take into account any possible changes in commodity pricing, or any potential changes or revisions to the exempted service package. The total exempted services cost also does not include any of the considerable costs of TA and management support provided by implementing partner agencies for service delivery and ensuring availability of exempted services commodities in Ethiopia.

The PHC costing study, from which the unit costs are used to estimate the total and commodity costs of exempted services, only focused at the primary health care level. Assuming the average unit costs to provide such services from a lower level of care is lower than the costs of providing the same services at secondary and tertiary levels, especially for human resources and indirect costs, it is possible that the total cost to provide exempted services at all levels of care are underestimated. However, we assume that the average unit cost of commodities for each exempted service would not vary dramatically between one level of care to another.

7. Conclusions

This report clearly indicates that financing exempted services, particularly their commodities, remains one of the major issues for the sustainability and success of Ethiopia’s equity-focused PHC policies. The amount of resources required for exempted service commodities is significant, not only as a per cent of the current allocations for health, but also as a per cent of the MEFF projections. With the projected decline in external financing for health, the sector needs to explore mechanisms and strategies to ensure domestic resources gradually take over the financing of exempted services in general and their commodities in particular.

It is therefore necessary for the sector to explore mechanisms and strategies for the long-term transition to gradually financing health in general and exempted services in particular through domestic resource mobilization and increased budget allocation to health. This paper recommends that the sector develop an exempted service financing strategy paper that outlines new revenue sources that would be acceptable within the current macroeconomic and fiscal policy without simply offsetting existing resource allocations. The FMOH needs to explore the experiences of other countries in financing health, and the feasibility of other domestic sources, by drafting the forthcoming exempted service financing strategy paper.

26 References


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