HSMII.

HEALTH CARE FINANCING

Department of Pharmacy
Kenya Medical Training College
September 2018 class
 Learning Objectives
Main objective
• To provide the learner with knowledge on
financial resource management in Health care
Systems
 Learning Objectives
Specific objectives
i. Describe the role of parliament
ii. Describe the role of treasury
iii. Describe the role of controller and auditor
general
iv. Discuss the sources of health care financing
v. Discuss financial accounting systems,
mechanisms and accounting documents.
 HEALTH CARE FINANCING DEFINITION
Health care financing refers to the “function of a
health system concerned with the accumulation,
mobilization and allocation of money to cover the
health needs of the people, individually and
collectively, in the health system… the purpose of
health care financing is to make funding available, as
well as to set the right financial incentives to
providers, to ensure that all individuals have access to
effective public health and personal health care”
• A good health financing system raises
adequate funds for health, in ways that ensure
people can use needed services, and are
protected from financial catastrophe or
impoverishment associated with having to pay
for them. It provides incentives for providers
and users to be efficient
 HEALTH FINANCING IN DETAIL
• It encompasses resource mobilization allocation
and distribution at all levels/ national to local
including how providers are paid.
• Refers to methods used to mobilize the resources
that support basic public health programs, provide
access to basic health services.

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 Financial Management
• Financial management entails planning,
organising, controlling and monitoring
the financial resources of an organisation
to achieve objectives.
 Financial Management
Financial management in the public sector is
governed by:
• The Public Financial Management Act. The
objective of this Act is to ensure that public
finances are managed both at the national level
and the county level in accordance with the
constitution of Kenya.
• Government financial regulations and procedures.
This contains financial regulations and procedures
that govern government finances.
 Principles of Financial Management

These principles provide a high-level guide for

staff members which can be used as a standard
in developing proper financial management
systems.
Consistency The financial policies and systems
must be consistent over time. Inconsistent
approaches to financial management could be a
sign that the financial situation is being
manipulated.
 Principles of Financial Management
Accountability
The organisation must explain how it has used its
resources and what it has achieved as a result to all
stakeholders, including beneficiaries.
Transparency
The organisation must be open about its work,
making information about its activities and plans
available to relevant stakeholders. If an organisation is
not transparent, then it may give the impression of
having something to hide.
 Principles of Financial Management

Viability
To be financially viable, a health facility’s
expenditure must be kept in balance with
incoming funds, both at the operational
and the strategic levels. Viability is a
measure of financial continuity and
security.
 Principles of Financial Management

Integrity
On a personal level, individuals must operate
with honesty and propriety. The integrity of
financial records and reports is dependent on
accuracy and completeness of financial records.
 Principles of Financial Management

Stewardship The HMC is expected to take good

care of the financial resources it is entrusted
with and make sure that they are used for the
purpose intended, this is known as financial
stewardship. In practice, financial stewardship is
achieved through careful strategic planning,
assessing financial risks and setting up
appropriate systems and controls.
 Government role in health care

• The Parliament, treasury , the controller

of budget and auditor general play a
major role in public financial
management.
 Role of parliament of Kenya in
managing financial resources
• Section (99) through to Section (103) of the
Constitution gives parliament the authority to
oversee the finances of the country including the
budget. The key responsibility of Parliament is
to ensure that:
I. The resource collection and mobilization policies
are sound and in tune with the laid down
legislations
II. The expenditure programs are sound
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 CONT….
III.The budget is implemented as it was
approved in parliament .
IV. The budgetary items are in line with the
existing legislation.
V.The appropriations match the needs of the
people .
 ROLE OF PARLIAMENT, AUDITOR
GENERAL AND THE CONTROLER
• The Controller of budget and Auditor General is a
corollary to the Public Accounts and Public
Investments Committees.
 The relationship between the Auditor-General and
Parliament emanates from the Constitution.
 The relationship between the two should be
balanced so that their roles and independence
remain clearly defined and separate.
 The provision of fair and impartial audit reports
and information to Parliament through the PAC and
PIC.
 ROLE OF PARLIAMENT, AUDITOR GENERAL
AND THE CONTROLER
Accounts for bodies or entities which
received public funding in order to assure the
taxpayer that there exists a body to investigate
accountability on behalf of Parliament.
In turn, a close working relationship between
the Auditor-General and Parliament enhances
public confidence that resources are used with
due regard to the efficient and effective
running of the economy
 Cont.
The auditor General and the controller of
budget are offices of the public and they are
supposed to provide an oversight and
accountability to the funds and how they are
spent and managed.
 CONT…..
It shall be the duty of the Controller of budget and
Auditor General:-
• (a) To satisfy himself that any proposed withdrawal
from the Consolidated Fund is authorized by law,
and, if so satisfied, to approve the withdrawal;
• (b) To satisfy himself that all moneys that have been
appropriated by parliament and disbursed have been
applied to the purposes to which they were so
appropriated and that the expenditure conforms to
the authority that governs it.
 Contd…
(c) At least once in every year to audit and report
on the public accounts of the Government of
Kenya, the accounts of all courts in Kenya, the
accounts of every commission established by this
constitution and the accounts of the Clerk of the
National Assembly.
(d) The Controller of budget and Auditor-General
and any officer authorized by him shall have access
to all books, records, returns, reports and other
documents which in his opinion relate to any of
the accounts referred to in subsection (2).
 Contd…
e) The Controller of budget and Auditor General
shall submit every report made by him in
pursuance of subsection (2) to the Minister for
the time being responsible for Finance who
shall, not later than seven days after the
National Assembly first meets after he has
received the report, lay it before the assembly.
 TREASURY DUTIES

i. Establish procedures and systems for proper and

effective management of government money
and property;
ii. Establish accounting procedures and systems for
the government to properly account for
government money and property;
iii. Superintend the expenditure of government
money to ensure that it can be properly
accounted for;
 Contd…
iv. Prepare and submit accounts for each
financial year under the Public Audit Act,
2003' for audit by the Controller of budget
and Auditor-General; and‘
vi. Ensure- that the accounts prepared comply
with the provisions of this Act
 FINANCIAL ACCOUNTING SYSTEMS

• By the end of the lesson the student will be able to

explain the following terms;
• Imprest
• Vouchers
• Perdiem
• Facility improvement fund
• Salary
• Allowances
• Vote books
 Cont.
• The Financial Accounting System (FAS) is an
on-line integrated financial accounting
system that records, monitors and
maintains all accounting and financial
transactions of the organization.
• IFMIS.
 Contd…
Imprest
• It is a form of financial accounting system.
• The most common imprest system is the petty
cash system.
• The most important characteristic of imprest
system is that a fixed amount is reserved which
after a certain period of time it will be
replenished.
• Petty cash imprest system allows only
replenishment of the spent monies.
 Contd… Advantages of imprest system

• The claimant can only spend what they have

and is only replenished with what they
spend.
• The amount requested is documented. This
documentation are the petty cash dockets
and their associated receipts or invoices.
• Petty cash receipts are written for each
amount issued.
 Voucher system

• This is a system in which a receipt

representing monetary value is issued but
can only be spent on certain items.
• For example a charity organization can offer
a health Centre a voucher to provide
assistance in paying the utility bills.
 Salary

• Agreed upon and regular remuneration for

employment that is a common practice. It is
paid on a monthly or bi -weekly basis and is
not based on hourly , daily or weekly or
piece work basis.
• Wage on the other hand is monetary
remuneration computed on hourly, daily,
weekly or piece work basis.
 Contd..
• Civil servants in the public sector are often
associated with low motivation, low
productivity and low quality of services
based on their salaries.
• Salaries are also being combined with
capitation and performance based
components to promote motivation as well
as higher productivity and quality.
 Advantages and disadvantages
Advantages
• Cost containment
• Equitable provision
• Easy administration
Disadvantages:
• Low productivity
• Low quality of care or service delivery
• Low morale of the providers
 Facility improvement fund
• Is revenue collected at public health facilities
as user fees paid to defray the costs of
running these facilities.
• The fund is usually vital in enabling facilities
to manage their day to day expenses and
manage situations where emergency
supplies have to be acquired.
• However most health facilities in Kenya are
facing challenges regarding this facility
improvement fund:
 Challenges:
• There is a lot of bureaucracies when the
facility is trying to get the money disbursed
to them from the county
government(county treasury)
• Graft and total misuse of the funds by the
county treasury of the facility.
• Lack of financial management tools for
managing and planning of the FIF funds.
 allowances
• Amount paid to employees as part of their
salary package, or to defray their out of pocket
expenses incurred on behalf of the firm.
 Vote book
• Is an account book which is used to record
and monitor expenditure in the public
sector. The information on these books is
subject to auditing to ensure that budgets
are well controlled and coincide with
financial regulations
• Public sector such as government health
institutions and schools use vote books
systems.
 Advantages of vote books
• Ensure no extra budgeting spending.
• Highlight unnecessary expenditure out of
the ordinary.
• Show the balance available so the
organization can keep on top of their
finances
• Ensure that sufficient funds are available for
future payments.
 Per diem
"Per diem is a daily allowance for expenses
—a specific amount of money an
organization gives an individual, often an
employee, student athlete (usually for away
matches), per day to cover living expenses
when traveling for work”.
 Different financing methods available
and organization of the financing systems

Financing Systems

Methods of public financing Methods of private financing

External financing
Internal financing User For-profit Medical Social
“Aid”
payments or savings contributions
Non-profit voluntary employers
private or compulsory employees
Social insurance insurance

Public systems of systems (illness)

health services

Unified Fragmented
System System
 Health Care Financing Sources
• Government of Kenya budgetary
allocation- In the financial year 2020/21,
the allocation was Kshs152 billion which
was approximately 4.9% of the total
government budget. These allocations
were made to the Ministry of Health.
 Health Care Financing Sources
• Appropriation in aid (AIA) - This includes
grants and loans from development partners.
The main development partners in health care
in Kenya include the German Federal
Government (KFW) and the African
Development Bank (ADF) among others. AIA
also includes user charges collections made in
the various public health centres in the
country.
 Health Care Financing Sources
• National Health Insurance Fund (statutory
insurance) - This is a fund for formally employed
individuals and those in the informal sector.
Formal sector employees' contributions are
deducted and remitted to the Fund by their
employers. For members, under the voluntary
category, they pay Kshs.500 per month
(Kshs.6000 per annum). For those in formal
employment, contributions are made as per their
income.
 Health Care Financing Sources
• Private Insurance- This is a fund contributed
by corporates and individuals for various
insurance products to the health sector.
Sources of finances for the government
• Ordinary revenue: which represents
the amount of money raised in a
given period through taxes such as
income tax, import duty corporation
tax, stamp duties, Value Added Tax
(VAT) and excise duties.
 Sources of finances for the government

• User charges: which are fees charged to

consumers of goods and services
produced by the government. These are
only paid by those who use the services,
such as birth certificates, driving licences,
passports and registration of real estate
properties.
 Sources of finances for the government

• Sale of assets: which includes the

sale of bonded goods and other
assets including shares in commercial
enterprises.
 Sources of finances for the government

• Investment income: which

represents income derived from
public commercial activities, e g.
dividends and interest on on-lent
funds, from Central Bank and state
corporations.
 Sources of finances for the government

• Grants from foreign governments:

which are non repayable funds
provided by foreign governments
for a specific purpose.
• Borrowing: which are repayable
funds loaned by foreign
governments, donors or domestic
markets.
 BUDGETING AND BUDGET TYPES
• Budgets are expressions of expected future
income and expenses.
• They are generally based on historical data, if
available, and adjusted based on assumptions
regarding inflation, increases or decreases in
income or expenses, and expected expansion
of programs and services.
 Principles of a good budget
A good budget should have the
following attributes:
• Comprehensiveness: which means
that the budget includes all fiscal
operations, on receipts and
expenditure sides, within a
sustainable macroeconomic
framework.

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 Principles of a good budget
• Predictability: which means that the
budget should be predictable within a
medium term horizon.
 Principles of a good budget
• Transparency: which means that the
budget should be prepared and
presented openly and information
should be available on a timely basis.
• Periodicity: which means that that
the budget should cover a specific
period of time.
 Principles of a good budget
• Contestability: means that economic
actors compete fairly for resources and
can challenge or question the
Government on any of the items in the
budget, or on any of its priorities
 Stages in The Budget Process
• Many Kenyans perceive the national budget
process as a one time event marked by the
budget speech, delivered by the Cabinet
Secretary of Finance, in the month of June
every year.

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 Contd…..

• The Kenyan budget cycle passes through the

following four major phases:
I. Budget planning and preparation
II. Budget proposal, debate and approval
III. Budget execution (implementation,
supervision and audit)
IV. Budget monitoring and evaluation
 Types of budgets
Annual Budgets
An annual budget is a budget that is
developed for a year long period of time.
An annual budget is often the organization's
yearly budget that they would publish in
summary form in their annual report or
business statements.

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 Types of budgets
• Depending on the organization, an annual
budget could operate according to the
financial year (e.g. 1st July 2000 – 30th June
2001) or the calendar year (e.g. 1st January
2000 - 31 December 2000).
 contd...
Operational Budget
• An operational budget can also be called an
organizational budget.
• This type of budget highlights the income
earned and expenditure that is incurred by an
organization.
• Operational budgets may be broken into
areas/ departments so that these
areas/departments have their own budget
allocation to operate within.

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 contd...
Program Budget
• A program budget highlights the income and
expenditure that is incurred for the
development and implementation of a specific
program.
 TAKE HOME ASSIGNMENTS

• TYPES OF BUDGETS- READ MORE AND MAKE SHORT NOTES

• THE BUDGET PROCESS- READ MORE AND MAKE SHORT NOTES.

• REFERENCE
• Fundamentals of Health Care Financial Management by Steven Berger
2007, 3rd Edition
• The constitution of Kenya 2010

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 QUESTIONS????

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