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Saturday, 3 January 2015

Current process of healthcare financing and need for purchaser-provider split in Bangladesh

Pooling of fund

The financing of health care in Bangladesh is mainly dominated by out-of-pocket payments by the households, government’s revenues, and development partners’ funding (indirectly to GO and directly to NGOs). Public spending on health is financed from national tax, fund received from development partners (e.g., WB, DFID, USAID, SIDA, CIDA, AusAID etc.) and corporations and autonomous bodies, stagnating around 1% of GDP between 1997 and 2007 despite the sustained economic growth. Besides Out-of-pocket payments (OOP) (64% of THE), other sources of private financing include private firms, private insurance companies and NGOs (~2.2%). OOP expenses of households and individuals go directly to the providers in the public, private and NGO sectors. 
Foreign development partners channel their funds to the health sector through GoB and NGOs. In absolute terms donor funding to MOHFW more than doubled between 1998 and 2011. However, as a share of the health sector program budget it fluctuated between 24% and 27% over the same period. During 1997-2007, donor grants to NGOs as a share of THE varied between 5% and 8%  (MOHFW 2010).

The health funds described above are generally pooled fund, with a scope for risk pooling (‘aggregation of individual financial contributions to cover the total health costs of a broader population’). Pre-payment and risk-pooling is essential pre-requisite for any insurance scheme.

Allocation of resources

In Bangladesh’s centrally managed public health care system, resources are allocated to cost centres (districts and upazilas) according to the size of the inpatient facilities (the OPD is not taken into account) and number of staff. Allocation is made solely based on no. of beds, bed days and sanctioned staff size. The cost for medicine and diet at different tiers are paid based on some set norms and are paid through both budgets (see annex). Funds are disbursed quarterly to cost centers (for revenue budget) and Line Directors (for development budget) under the two Directorates. In this approach, no. of beds and facilities are extremely important in determining the level of allocation in a particular area. Thus, allocation doesn’t reflect health needs of the varying population size and there is wide variation in per capita allocation in different districts.

For equitable allocation based on health needs of the population, the HEU of MOHFW is currently working on a need-based resource allocation formula which takes into account four factors:  i) population size, ii) age-sex composition of the population, iii) different health needs in each group, and iv) cost of care. In this formula, poverty is considered as a proxy of differential health needs. For the purpose of the implementation, the initial focus would be on the adjusted population and the need proxied by the poverty rate.
P=size of population; a=age-sex adjustment; n=differential health needs within each group; c=cost of care
Source: Need-based resource allocation formula, HEU/MOHFW, 23 October 2013

Besides, LLP (Local Level Planning and budgeting) is also an effective tool for need-based allocation of resources in health.

Purchaser provider split?

MoHFW generally plays the dual role of purchaser and provider, where health services are provided through a range of facilities at different tiers and salaries of HCPs are mainly paid through the revenue budget, including payment from the development budget for some vertical programs. In both cases, salaries remain fixed with no opportunity of performance based payment except recent Demand Side Financing Program (the maternal voucher scheme currently operating in 53 Upazillas).

There remains exception in case of a number of programmes, where MOHFW contracts out the service provision to NGOs:  the National Tuberculosis Control Program, the National AIDS and STI Programs, and the the Urban Primary Health Care Project under the Ministry of Local Government. In all these programmes, the NGOs are chosen through open competitive bidding procedure for a certain period.

For greater transparency and accountability in health sector, purchaser provider split is advocated. The purchaser–provider split (PPS) is a service delivery model in which third party payors (purchasers) are organizationally separated from the service providers who are contracted through a competitive process to deliver services based on the needs of the population. The purchaser-provider split model of service requires the existence of a dedicated purchasing agencies (e.g., the NHSO of Thailand) with responsibility for financing services and dictating the terms of service provision by the providers. Providers of services are contracted through an open competitive bidding and these contracts specify their roles and responsibilities in delivering the public goods or services.

This PPS model requires increased autonomy for public healthcare providers, so that they have the ability to manage their facilities in the most cost-effective way, under the overall policy direction of the MOHFW. For example, autonomy for hospitals can take different forms: letting them retain revenues from fees, giving them the authority to hire and fire staff, and allowing them to raise funds. This model ensures competition among the service providers which results in improved, responsive and better quality health care services in an efficient and cost-effective manner.

Healthcare Financing Strategy 2012-2032 and purchaser-provider split: a National Health Security Office (NHSO) for Bangladesh

The first ever healthcare financing strategy has addressed the issue of separating the purchaser from the provider in the provision of health care services. It also plans to generate new resources for health and its efficient and equitable utilization for ensuring financial risk protection in order to achieve universal health coverage (MOHFW 2012) In its 20 year implementation period (2012-32), the strategy aims at a reduction of OOPP from 64% to 32% of total health expenditure, an increase in government expenditure from 26% to 30%, an increase in social protection from less than 1% to 32%, and reduced dependence on external funds from 8% to 5%.

Under the proposed HCFS 2012-’32, there would be a national Social Health Protection Scheme with one pool and one benefit package which will be administered by a NHSO (like the NHSO of Thailand). The NHSO will be an autonomous organization and will pool funds from the public, private, and development partners' fund and finance the Social Health Protection Scheme. Flexible and targeted disbursements by the fund could increase access to quality care, increase financial risk protection, improve efficiency, and increase resources for health.

In the first stage, the scheme will be targeted to the BPL populations and formal sector including voluntary subscription from the informal sector. In a later stage, partial subsidy to those in the informal sector and near the BPL will be included. For pooling pre-payments and managing the purchase of health care services from, and payments to, the providers will be the tasks of the NHSO. This independent authority, beside purchasing services from the public sector, may also subsidize the service packages of the non-government providers who are running micro and social health insurance services especially for the poor and the disadvantaged.


1.    Bangladesh Health System Review vol 5 no. 1, 2015. (Health Systems in Transition series by APO) (forthcoming)
2.    Health Care Financing Strategy 2012 – 2032. HEU/MOHFW, Dhaka, 2012.
3.    National Health Accounts 1997 – 2007. HEU/MOHFW, Dhaka
4.    Ensor et al. Geographic resource allocation in Bangladesh. Research paper 21. HEU/MOHFW, 2001.
5.      Need-based resource allocation formula for HPN sector. PP presentation by HEU/MOHFW, 23 Oct, 2013.

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