Financing health care in the Sudan: Some recent experiments in the central region

INTERNATIONAL JOURNAL OF HEALTH PLANNING AND MANAGEMENT, VOL. 1, 111-127 (1986)

FINANCING HEALTH CARE IN THE SUDAN: SOME RECENT EXPERIMENTS IN

THE CENTRAL REGION

ABRAHAM BEKELE’ AND MAUREEN A. LEWIS* ‘Economic Consultant, 2812-A.S Abingdon Street, Arlington, Virginia, USA

’Research Associate, The Urban Institute, 2100 M Street NW, Washington DC, USA

SUMMARY

The macroeconomic difficulties facing the developing countries are having a direct impact on these countries’ public health programs. Reduced budgets and rising demands for health care are forcing health ministries to either cut back on already inadequate health care services or identify alternative sources of revenue. This article describes and analyzes a set of experiments designed and implemented by the Sudan’s Central Province that have effectively raised the operating budget of the regional health ministry. The seven experiments encompass imposition of fees, cost containment efforts, and local taxes earmarked for health. Together, the revenue generating efforts have improved the efficiency of service delivery, ensured more efficient resource allocation, raised much needed revenue for the health system, and honored the government’s commitment to make free health care available to the Sudanese population.

KEY WORDS: Sudan; Health care financing; Resource management in health care; Revenue generation; Cost containment

INTRODUCTION

The financial crisis facing the developing nations is constraining economic growth and forcing governments both to rethink and to refocus their domestic programs. This retrenchment has not only included the public health sector but has hit government health care investments particularly hard. Before discussing either the Sudan’s financial situation, its health sector, or the financing experiments, the nature and extent of Third World financial difficulties are summarized to provide a context for the discussion of the Sudan government’s health finances, and to demonstrate how common the financial difficulties facing the Sudan are in the developing world.

INTERNATIONAL FINANCE AND HEALTH

The 1970 oil price rise provided an initial shock to Less Developed Country (LDC) economies, which was further aggravated by the subsequent recession in the developed countries, the LDCs’ principal export markets. Contraction in earnings and incomes led to considerable and often ill-advised borrowings from international bankers in an effort to maintain living standards and economic

0749-6753/86/010111-17$08.50 0 1986 by John Wiley & Sons, Ltd

112 A. BEKELE AND M . A. LEWIS

activity. The ramifications of this strategy are only now becoming apparent. As economic conditions in the LDCs have been slow to improve, the expected

revenues to repay lenders have not been forthcoming. Moreover, a number of countries, including the Sudan, failed to adequately coordinate and manage foreign borrowings of government entities and have struggled in recent years merely to measure the extent of foreign debt and debt service. Debts, of course, must be repaid in foreign exchange and poor export performance has jeopar- dized countries’ ability to pay. Moreover, euhange rate adjustments combined with restrictions on imports have contributed to a further dampening of economic growth and exports.

Requests for IMF assistance to alleviate foreign exchange constraints have often required severe policy and resource allocation shifts. Because production and other economic activities so often require imported inputs, the competition for shrinking foreign exchange becomes intense. IMF assistance (such as standby arrangements) hinges on a set of prerequisites that typically includes reductions in government budgets, particular scrutiny of subsidies, and devaluation of the currency.

The health sector is frequently a source of high government expenditure, one that contributes little to short term economic performance or foreign exchange earnings. This, combined with the high annual recurrent costs of health care services (Heller, 1979), has made the sector an easy target for hard pressed ministries of finance.

The Sudan currently faces an international public debt of $5.66 billion, and a total international debt in excess of $1.1 billion (IMF, 1983). This represents a considerable rise over the 1970 external public debt of $319 million.

The Sudan’s poor export performance, devaluation and restricted access to foreign exchange have forced a rescheduling of its external debt, an action which serves to postpone repayment in the short-term but may well raise the debt overall. In December of 1981 with 82 per cent of interest in arrears the IMF provided the Sudan with $115 million in foreign exchange. A modification of that agreement in early 1983 provided an additional $646 million, and at that time the Sudan was 100 % in arrears for both principal and interest (IMF, 1983). The extent of the Sudan’s debt problem can be seen from recent experience: in 1982 external public debt represented 47.7 YO of gross national product (GNP) and debt service was 7.5 YO of exports. These figures indicate the seriousness of the financial difficulties facing the Sudan, and are similar to experiences of other heavy borrowers with limited resources.

How much health care has been affected relative to other activities under such austerity measures has not been systematically documented. In the Sudan, both per capita health expenditures and the proportion of government expenditures going to health have fallen since 1971; drug imports, although they have fluctuated somewhat due to procurement practices, have remained reasonably stable relative to the level of total imports over the same period. Moreover, the health sector has experienced the lowest rate of budget increase of any ministry since 1971, and some evidence suggests that the proportion of health care covered by public funds has decreased (Dunlop and Mack, 1983). In 1972 roughly six per cent of the central government budget was allocated to health; by

FINANCING HEALTH CARE IN THE SUDAN 113

1978 it had fallen to less than two per cent. Thus, although cutbacks have been initiated throughout the government, the health sector has suffered disprop- ortionately (Lewis, 1983).

PRIMARY HEALTH CARE: PROMISE AND PROBLEMS

The 1978 Alma Ata Conference sponsored by WHO and UNICEF produced a Declaration calling for the development of national plans to establish primary health care (PHC) systems (WHO, 1978). The appeal of the PHC concept has been its low technology, low cost and focus on the greatest (preventive and curative) health needs of the population, particularly those outside the modern health care system. PHC was subsequently made a central component for reaching the WHO goal of ‘health for all by the year 2000’, due to the fact that PHC services are targeted at underserved rural populations (WHO, 1979). The aspirations and efforts of the participants at the Alma Ata Conference have been translated into programs in developing countries with often significant levels of investment. Indeed, the considerable efforts by governments and donors have often produced extensive PHC networks in the developing countries.

The possible effectiveness of PHC has been documented through a number of service-cum-research efforts (Gwatkin, Wilcox and Wray, 1980) and the approach has been evaluated repeatedly on a program level (for example, Parlato and Favin, 1982). The consensus of existing evidence is that PHC can deliver basic, low cost care to rural populations.

Despite the promise of PHC, the lack of appreciation for the scarcity of financial resources has compromised the sustainability of PHC experiments. For example, little consideration has typically been given to examining the resource requirements of PHC networks, the source of additional resources to sustain new programs like PHC, or the alternative means of supporting health services, which have generally been free-service programs. These and other similar topics regarding the financing of PHC are largely ignored in the design and implementation of health programs. And whereas careful planning often precedes medical decisions, many of the fundamental questions of how to afford PHC are ignored. The result has been a workable, relatively low cost alternative to urban-based hospital care that is, nonetheless, often financially unviable (de Ferranti, 1985; USAID, 1982).

The crux of the problem is a lack of resource planning in the health sector, which is fed by a dearth of data on crucial elements of PHC finance, and poor management of health care delivery services. A first step in rectifying the problem is to get a better handle on the costs, especially the recurrent costs, of primary health care in order to design more affordable programs. Secondly, more attention is warranted on how to pay for PHC services. Planning to ensure that health interventions are needed by the population and affordable by the government (and users where relevant); allocating resources to maximize the benefits and beneficiaries of government health expenditures; and, managing resources to ensure efficiency; are all central components in efforts to improve the sustainability of PHC.

This study explores some of these issues for the Sudan. Although the major

114 A. BEKELE AND M. A. LEWIS

focus of the study is on the effectiveness of alternative revenue generating schemes, planning, resource allocation and financial management are implicit themes. Indeed the lessons of the experiments described and analyzed below can be summarized as follows: (1) more systematic planning and consideration of costs and resources are key contributors to financial solvency, and are essential in establishing appropriate incentives for the efficient use of resources; (2) alternative means exist for raising revenue for basic health care that users and taxpayers are willing and able to pay fo5. and, (3) managing finances is not very difficult or costly if the proper incentives are in place.

PRIMARY HEALTH CARE IN SUDAN

Sudan’s commitment to primary health care dates back to 1976, two years before the Alma Ata campaign was launched (Democratic Republic of the Sudan, 1975). The system has grown, has trained numerous health care workers and is technically in operation. However, lack of resources has seriously affected the quality, quantity and effectiveness of the system, and the system has fallen short in meeting its goals (Bekele, 1984).

The establishment of PHC delivery programs in the Sudan, and the LDCs in general, has required the allocation of additional monies from national coffers rather than substitutability among existing government health services. This was required for three reasons. First, there did not appear to be any slack in health budgets; second, the target population served by the existing secondary and tertiary care system was growing, meanwhile these facilities were meant to provide backup services for PHC; and, third, PHC programs were aimed at previously unserved populations. For all these reasons, it required additional resources to finance a new arm of the government health care system.

The PHC system was established in large part with foreign donor funds, but as is usually the case, recurrent cost funds were not forthcoming and became the responsibility of the central government once the start-up tasks were completed. The system was designed to provide free services and to rely heavily on modestly salaried PHC workers. Lack of supervision, limited supplies and erratic salary payments have demoralized many of the system’s health providers and seriously undermined their effectiveness and interest (Bekele, 1983).

FINANCIAL EXPERIMENTS IN THE SUDAN’S CENTRAL REGION

In response to Sudan’s financial difficulties and the reduction in public health resources, alternative means of financing health services are being explored and considered by the health leadership and some experimentation has occurred. Indeed, financial survival of PHC will require using resources more judiciously and raising revenue for the health sector.

Realization of the problems on a regional level has led to some very innovative experiments in the Central Region, which appear to have produced an increase in health care service availability and higher revenues for the health sector. The latter point is an important one because in many cases revenues


generated by the health system are deposited in the national treasury and may or may not go toward financing health care. Barring direct enforcement, incentives for collection are nil where revenues must be passed on. This is discussed further below.

The financing experiments are those designed and implemented by the Central Region’s Ministry of Health in its three provinces: Gezira, White Nile and Blue Nile. As resources dwindled and demand continued unabated, the Regional Ministry of Health (RMOH) launched a number of efforts to contain costs, raise overall health revenues and share costs with users. Without such efforts the only remaining option would have meant curtailing already insuf- ficient health care services.

The Regional Minister of Health identified the shortcomings of the region’s health services, noted the trend in revenues from all sources and decided that greater efficiencies and additional revenues were critical to expansion and improvement of health care supply. Because the Regional Health Minister had the authority to experiment with the health delivery system and could retain generated resources and because the region had the authority to tax, a broad financial package of reforms was designed for the province. And although most of the experiments were only implemented in the capital of Wad Medani, attempts were and are being made to expand into rural areas.

The data analyzed in this article were collected from original sources during the summer and fall of 1984. Financial records of the Regional Ministry of Health, hospitals, pharmacies and night clinics were examined, and US dollar costs and revenues calculated using the World Bank’s exchange rate conversions for 1984. In the case of the evening clinics, three of the 29 clinics in the region were selected, representing the spectrum of evening clinic quality; three of the twelve People’s Pharmacies in the region were surveyed for the study. In both cases, the sites were chosen to reflect a representative sample of facilities. Factors used in selection included period of operation, size of population served, organization and management structure, level of revenues generated, size and quality of personnel and distance from regional capital. Although data on three evening clinics were collected, the incompleteness of the Derdig clinic records should be noted and interpreted with caution. The data for the tax experience and the Wad Medani hospital were collected from government and hospital records.

The quality of the data cannot be assessed with available information. All of the experiments and each of the sites established their own data collection formats, and records were not always complete. Some of the shortcomings were mitigated through cross checks, which improved confidence in the data. Data collection also favored more reliable sources, which may bias the results towards the most efficient institutions. The Regional Ministry of Health has kept track of gross revenues from each of the experiments, but has largely ignored costs. Thus, reliance on government records was coupled with a separate costing out of health services so that the net revenues of the experiments could be identified.

Although these various experiments were designed primarily to increase revenue, it is not the only criterion of success. Issues of particular importance that also define success, were evaluated where possible, and include: (1) shifts in

116 A. BEKELE AND M . A . LEWIS

Table 1. Revenue generating activities of Central Province: Summary of activities, the cost to userskontributors and net revenues of the programs

Activity Summary of activity User expense Average annual (year begun) net revenuekavings

People’s Phar- Quasi-public establish- macies (1980) ment retailing drugs and

medical supplies at below- market prices. Subsidized by the central (or provincial government) to improve access and availability of pharmaceuticals. Staff include pharmacist, assistant pharmacist, accountant, cashier, and cleaner.

Mark-up for drugs from government’s central rpedical stores (CMS) aver- (6/83-5/84) ages 300% ; from private wholesalers profit margin aver- ages 11.6% (based on Wad Medani case only).

Wad Medani = f S 3770 Rufaa = f S 3850 Sennar = f S 1220

User charges Forty of the 860 beds sub- Super first fS 72,152 for hospital ject to various user class = f S 10.00 (7/834/84) beds at Wad Medani vices and upgraded food Second class = f S labor costs of the General Hos- and accomodations are 1.00 program. pita1 (1983)

charges. Additional ser- First class = f S 5.00 Excludes any additional

provided with each class.

Fee-for- Government Clinics Initial service even- opened six evenings per consultation = f S ing clinics week for 2Yz hours, staf- 1.00 (1981) fed by a medical officer, Treatment and

medical assistants, qual- ified nurses, laboratory 0.50 assistant, and non-medical Lab test = f S 0.50 personnel. Modest fees charged for basic services set by the Regional Ministry of Health. Drugs and supplies procured from People’s Pharmacies.

medication = f S

Net revenues, account- ing for all direct and indirect costs, including depreciation of build- ings and equipment.

El Mazad = -fS 860 Derdig = f S 1190 El Dibaga = fS 500* (6/83-5/84)

incentives that improve labour’s productivity; (2) increased health service utilization due to improved access, especially for low income families; and (3) reduced overconsumption of health services.

There is always a concern that user charges will deter low income families from seeking health care, and charges will very likely affect the composition of demand. In Wad Medani, fees were set to be affordable to lower income users, but there is discussion of raising fees to recover a larger proportion of costs, subject to an assessment of ‘ability to pay’ among the poor. However, without better data on the income and consumption patterns of patients, the resolution of equity issues cannot be attempted, but they should be kept in mind in evaluating the success and impact of health financing schemes.


Table 1 cont.

~ ~~

Activity Summary of activity User expense Average annual (year begun) net revenueisavings

Bus fare Bus tax to help support surcharge public health activities. et price, depending (6/83-5-84) (1979)t on bus fare.

Cinema Cinema tax to help sup- surcharge port public health activi- price for 1st through (6/83-5/84) (1979)t ties. 3rd class; 7% of

5 8 % added to tick- f S 221,100

20% added to ticket fS 26,100

price for box seats.?

Visitors’ fees at Wad Meda- patients and visitors per ni Gen. Hos- visit. pita1 (1969)

Hospital food Hospital took over food An average reduc- f S 555,00O/year for the service (1982) service from contractor.

Entrance fee charged to all f S 0.25/person/visit f S 299,900 (5/8>5/84)

tion of 45% in costs Central Region; f S Original contract charged of food and food 123,00O/year for Wad for 3 full meals per person preparation at dis- Medani General Hos- per day regardless of de- trict and rural hospital alone. (6183-5/84) mand. Innovations in- pitals. and 65% in clude: hospital procure- Wad Medani Gener- ment and preparation of al Hospital. Based food; only requested food on costlinpatient cal- prepared and delivered to culation. patients.

* Data for El Dibaga are based on records for only a single month. t Together and combined with donations, bank interest, and various other sources, a total of f S

$ Box seats pay 30% more in absolute value of surcharge although they represent only 7% of ticket

Note: 1984 exchange rate US $1 = f S 1.78. (This commercial exchange rate applied to most imports; ‘essential imports’ such as drugs and agricultural imports, were purchased at a more favorable exchange rate: US $1 = f S 1.30.).

640,057 was raised between July 1979 and June 1984 through revenue generation schemes.

price.

Table 1 summarizes the seven experiments introduced between 1969 and 1983, and provides information on the monetary cost to users and the net revenues collected by the RMOH. Resources were generated by three basic methods: (1) user fees; (2) health taxes; and (3) cost and subsidy arrangements. As antici- pated, every experiment generated income, although the level of net revenue varied.

User Fees

User fees were initiated not only to raise revenue, but also to increase the supply and kinds of health services available, and to discourage unnecessary visits. The imposed charges included entrance fees at the hospital for visitors and


patients over age 14, fees charged for patients willing to pay for upgraded hospital services, and the fee-for-service evening clinic program that expands the supply of health services and allows health workers to supplement their incomes.

Visitors’ fees generated the most revenue of any of the experiments. The initiation of a visitor’s charge was originally meant to discourage loiterers, but has evolved into an important and reliable source of hospital revenue. Moreov- er, the charges are modest. Raising the fee from Sudanese pounds (fS) 0.10 to 0.25 in 1983 resulted in a doubling of revente but only a 20% reduction in the number of entrants, which indicates a non-negligible but highly inelastic demand at -0.13. An inelastic demand for hospital care indicates that patients will continue to seek care (and visitors, who virtually care for patients and bring them food and other necessities, will continue to enter the hospital) despite entry fees. Since some are not willing to pay the small entrance fee it suggests that an excess of visitors entered previously; however, without better data on the composition of entrants, this is simply speculation. The introduction of visitors’ fees has probably made the job of hospital employees easier, but it is hard to determine the impact on the quality or quantity of services.

Those unable or unwilling to pay the visitor’s fee have the option of visiting lower level clinics and hospitals within the region that do not charge entrance fees. In some respects this has improved overcrowding at Wad Medani, and encouraged the use of lower level (and lower cost) facilities where possible. In short, the net result of the visitor’s fee is that a portion of the cost of care is borne by users, waste is reduced and patients are discouraged from using the hospital for services they can obtain from relatively lower cost facilities.

In addition to generating revenues (in two out of the three study sites), the quality of available hospital care has been improved through the imposition of user charges for upgraded services at the Wad Medani General Hospital. The option of higher quality care at a modest cost is both popular and in keeping with the government’s mandate of meeting the health needs of low income households. Comparable prices for private rooms in the private sector are significantly higher at f S 35 to 50 per day, which contrasts with the highest priced rooms at Wad Medani General of f S 10.00 per day. The fee-for-service hospital in-patient receives greater privacy and better food. These private rooms have been fully booked since their establishment.

The evening clinics have served to increase the supply of health care, at a cost affordable to lower income families, and at times that are more convenient for the employed. Moreover, they provide an opportunity for physician consultations at a modest cost and in a convenient location. In addition, the evening clinics’ excess revenue will in effect be used as a cross-subsidy for free services, thus encouraging those who are able and willing to pay to subsidize the poorest households.

The clinics provide general outpatient consultations, administration of drugs (usually injections) and laboratory tests, mostly blood films used for diagnosis. More complicated diagnoses or serious cases are referred to the Wad Medani General Hospital. In principle, the entire stock of the Health Center’s equipment is available for use by the evening clinic. However, only laboratory


equipment is borrowed; smaller equipment such as stethoscopes are provided by the medical officer in charge. Most supplies (e.g., laboratory chemicals, tongue depressors, plastic gloves and reusable syringes) are taken from the morning clinic stock. A limited drug supply is procured from the People’s Pharmacies for distribution.

The evening clinics are based in lower income sections of Wad Medani and serve their surrounding population. The medical officer and technicians are essentially ‘moonlighting’ to earn additional income, and are on the RMOH payroll. The medical officer is part of the hospital’s staff. The program makes use of otherwise dormant facilities between the hours of 6:OO p.m. and 9:OO p,m.; free public clinics only operate between 8:30 a.m. and 2:OO p.m.

Roughly 70 Yo of evening clinic costs are salaries, or ‘incentives’ as they are termed, and 27 Yo is used to cover drugs and supplies. The latter are obtained at cost from People’s Pharmacies. Only five or six commonly used drugs are on hand, with prescriptions issued for the rest.

Utilization of the clinics is high, with the three sampled clinics serving between 286 (El Dibaga) and 430 (El Mazad) patients per month (20 and 25 days on average, respectively). Applying the three-clinic average of 367 outpatients per month per clinic to the 12 evening clinics suggests that 1835 consultations are provided monthly by the night clinic system. This translates into at least a 12 YO increase in outpatient treatments in Wad Medani.

Availability of physician services is a major attraction for the local communities, as is the convenient time. Thus it is not surprising that the evening clinics are popular services. A further indication of the demand for these services was the doubling of all fees that had no effect on utilization.

An important additional factor in the evening clinics experiment is the incentive given to workers to provide quality care, since their incomes from these ‘extracurricular activities’ are tied to attracting and satisfying a paying clientele. This may also help to explain their popularity. It would be useful to measure the relative productivity of workers during the morning and evening clinic sessions, to determine the importance of incentives in delivering health care, but this was beyond the scope of this study.

Health Taxes

The bus and cinema tax together have generated considerable revenues for the health program. Simply raising the cost of bus service and entertainment that individuals are already willing and able to pay for has raised over ES 200,000 a year. It is a simple, effective means of raising revenue; and, although inequitable in that it does not differentiate across users by income or need for health care, it taxes items that are relative luxuries in Sudan and is implicitly progressive.

The visitor’s fee is in effect a tax on hospital use, but its objective of restricting access to the hospital to those with a purpose suggests that it restricts overconsumption as much as it raises revenue. Nevertheless, it is a tax on the consumption of health services and on visits by the public to see hospital patients.

120 A, PEKELE AND M. A. LEWIS

Cost and Subsidy Arrangements

Two separate efforts have reduced RMOH costs and improved the quality of services delivered. The first is the People’s Pharmacies, which allow private distribution of drugs subsidized by the central or regional government. Although 87 % of pharmacy labor costs are paid by the regional government, profits are used to: (1) cover some salary costs and salary supplements for those receiving a government salary (e.g., the pharmacists); (2) purchase additional drugs; and (3) upgrade pharmacy services through rein7estment. Prior to this innovation, drugs were in chronic short supply and although private sector alternatives were available, they were costly. The People’s Pharmacy alternative makes the hitherto free but unavailable hospital drugs now obtainable at a subsidized price.

Pharmaceuticals are purchased under regional government auspices from the national government’s Central Medical Stores (CMS). CMS is the purveyor, storer and distributor of government pharmaceuticals. It coordinates receipt of donated drugs and undertakes bulk procurement as well. The cost of these drugs is therefore minimal. Since CMS handles only some drugs, People’s Pharmacies also purchase pharmaceuticals directly from private suppliers.

The People’s Pharmacies have become so successful that the central government in Khartoum has adopted the approach, and People’s Pharmacies have proliferated in other regions. Indeed, according to Central Medical Stores, there were 24 People’s Pharmacies throughout the country in early 1985. In addition to quality improvements, the plan also raises the quantity of drugs. Previously, shortages of pharmaceuticals had severely limited the role and effectiveness of the regions’ free hospital-based care.

The private sector in the Central Region has not been adversely affected by the People’s Pharmacy either. Private outlets continue to sell drugs on demand, whereas the government subsidized pharmacies require a physician’s prescrip- tion, which divides the market to some extent. Sparse evidence available suggests little abuse of the system. Private pharmacists have generally remained tolerant of the encroachment of the People’s Pharmacies until, that is, the government subsidized pharmacies began to dominate the market. Disgruntle- ment of private pharmacies has occurred in El Obeid in western Sudan, but Central Region has not experienced difficulties in this area.

The snob appeal of the private drug stores has also served to segment the market sufficiently to provide ample clientele for both private drug stores and People’s Pharmacies. In effect, market forces are dividing up the market in an equitable and efficient manner.

The second effort to be cited here of cost containment is that of the hospital food service. A study by the Medical School of Gezira University showed the excessive waste of purchasing food from high priced contractors and preparing three full meals for every patient, most of whom only wanted small meals or nothing at all. It is common practice in the Sudan to have family and friends prepare or purchase food for hospital patients, which significantly reduces the need for institutional meals. A new food system was introduced which entailed: hospital procurement of food and preparation of meals; daily inpatient surveys to identify the quantity and type of food desired by inpatients; and wholesale food purchases from local markets. Now, hospital prepared food is more reliable


and much less costly. Food costs dropped by 65 % in the first four months of the hospital’s food service operation. The savings are due to a reduction in the quantity of food purchased and to lower food costs. The savings represent a 21 % reduction in the region’s hospital operating budget, excluding salaries and capital expenditures.

These two experiments, on drugs and catering, have reduced the government’s subsidy and improved efficiency; and, in the case of the People’s Pharmacy, the program has improved access to pharmaceuticals.

Conclusion

In an average year, about f S 1,222,577 in net revenues is generated for the RMOH by the seven experiments described here. This is a considerable sum, representing 30% of the annual RMOH operating budget, though it excludes salaries and capital expenditures, which are fixed transfers from the central government. Moreover, the experiments have increased the supply of health care to low income families through the establishment of People’s Pharmacies and evening clinics. The Central Province’s experience suggests that resources can be generated through various financing mechanisms. Appropriate incentives, sound management and clear objectives, however, are the implicit components that have allowed some degree of success.

Despite cost recovery objectives, the needs of lower income households have been a central concern for the Regional Minister of Health, especially in setting affordable fees. Although a more vigorous analysis is required to assess affordability than is presented here, the fees were set well below those of the private sector and, as discussed, appear to have had if anything a positive impact on health care utilization. Consultations with local community leaders also contributed to fee setting, so that local needs were considered.

Recovering costs and accommodating various income and other constraints is a difficult matter that can prove costly. Typically, a sliding scale or other progressive tool is imposed to reduce the financial burden on Door families. Although more equitable than straight fees, such adjustments are expensive to administer and open to abuse. Indeed, the Thai government recently dropped all charges in its family planning program because financial administration became too complicated and costly (Knodel, Bennett and Sutton, 1983). This issue of funds management is discussed further below, but it is important in weighing up an appropriate balance between resource and equity objectives.

The health sector’s ability to retain revenues it generates, to supplement salaries or otherwise improve the efficiency or environment of health care delivery, is an important but often neglected key to encouraging worker productivity and consistent supervision. Moreover, some flexibility in how earnings may be spent is likely to raise revenue collection.

Of course, the experiments mentioned above were not fully successful. How much can and should be charged so as to maintain a low-income clientele but maximize revenue, and the actual equity implications of the experiments, especially across locales within Wad Medani, are examples of some of the outstanding and thorny topics underlying the success of the Central Province’s


experiments. Additionally, although the experiments raised funds for the health care system, its intake was small relative to the overall RMOH budgets. The capital and salary costs have not been included for two reasons. First, physician salaries are fixed and are covered by the central government through the RMOH, and tampering with salaries is unacceptable; second, only budget estimates are available as expenditure figures are not collected.

Overall, the effort to take advantage of different sources of revenue and the successful implementation of different prototypes are particularly noteworthy. The RMOH did not have anything approaching a prototype to guide the design, no donor was involved, and Sudan is a low income country with limited management skills. Nonetheless, a set of innovative and interesting revenue generating experiments were implemented that have had some success. This suggests that these types of experiments can be designed and implemented in other country settings and circumstances.

FINANCIAL MANAGEMENT

Yet, a major consideration for any country in launching cost recovery efforts for services, or for taxing particular activities, is the cost of collection. Some evidence in transportation and other sectors suggests that the resource needs of collection may negate any possible benefit from the imposition of fees. The evidence compiled here for six of the seven revenue generating experiments suggests that collection costs are quite modest as a percentage of gross revenues. Table 2 provides annual figures on gross revenue, costs of fee collection, and the proportion of revenues spent on fee collection for the six programs.

Programs expend between 1.7% and 13.0% of their gross revenues on collection; an average of 4.9% of revenues goes toward collection. The 13.0% for the cinema surcharges is an outlier, perhaps reflecting the relatively low level of revenue generated by the tax on cinema tickets. Collection methods and their costs vary across the experiments. The surcharges on bus and cinema, for example, involve a full-time accountant to administer the accounts, and a half-time use of a RMOH vehicle; no supplies are necessary since these are provided by the bus company and cinema owners. An additional cost is the five per cent of revenues paid to the tax department as its fee for handling and implementing the scheme. People’s Pharmacies, evening clinics, visitors’ fees and fee-for-service hospital beds all employ part-time or full-time accountants and cashiers to handle the collection and storage of revenues.

Although collection costs have posed a deterrent to the imposition of fees in the past, the Sudan experience in charging for health care delivery and in local taxation demonstrates that the costs of tariff collection need not be high for any form of taxation or fees and that the benefits can clearly outweigh the costs. Fees and taxes appear to be cost-effective means of raising revenue for the health sector, even in low income areas.

In addition to the cost of collection, the incentive to collect the revenue is the key to the success of cost recovery efforts. In almost all of these cases, fees are retained by the collection entity for its own allocation, and cost savings do not jeopardize subsequent budgets, as they do in many countries. For example, the


Table 2. Annual gross revenues and costs of collection for various revenue generating activities in Wad Medani (Sudanese pounds)

~

Total cost Gross of collec- revenues tion*

Wad Medani 264,000 10,400 Rufaa 317,000 11,723 Sennar 255,000 8326

User charges for hospital beds 76,000 3848 t

Fee for Service Evening clinics

El Mazad 8400 350 Derdig 8000 410 El DibagaS 8200 650

Visitor’s fees 325,000 25,100

Bus surcharge 225,000 3900

Cinema surcharge 30,000 3900

Cost components of fee collection

Facility, Collection

Labor tion Supplies centage of Transporta- Furniture, costs’as per-

and depre- revenue ciation

- ~ - ~ _ _ _ _ _ ~

5167 688 4545 3.9%

5363 1000 1963 3.3% 6740 2475 2508 3.7%

1548 1000 1300 5.0%

300 - 50 2.0% 360 - 50 1.0% 600 - 50 7.9%

9800 1000 14.300 7.7%

1200 2700 - 1.7%

- 1200 2700 13.0%

* Labor costs represent roughly one third of total labor costs (equivalent to the number of cashiers, accountants and part-time typists employed relative to total number of employed at the pharmacy), and includes direct salary payments and supplements as well as indirect costs imputed from government salary. Other costs are one fourth of total expenditure in each category except for stationery where 100% of cost is calculated. Drug costs are excluded.

t Costs include both collection and administrative costs as these cannot be separated, therefore the figure is an overestimate for collection alone. + Data are estimated based on records for only a single month.

Note: 1984 exchange rate US $1 = f S 1.78 (see Table I for further explanation).

visitors’ fees and the charges for upgraded hospital care are under the direct control of the hospital, and are used to finance the running of the hospital without interference by the provincial or central government. Hence, strong incentives encourage close hospital supervision, faithful collection and careful handling of collected funds. .

Often, in other country settings, hospital and clinic fees are sent to the national treasury for disposition, and are not even necessarily allocated to health activities. Under such circumstances the incentive to collect revenues is absent for both the collection agent and hospital management since no direct benefits are to be derived from fee collection. Although collection is a modest proportion of total revenue, it is not costless. Resources need to be diverted from other hospital activities to collect fees, maintain accounts and ensure security. If the


institution will not benefit from the activity (and presumably will incur minimal, if any, punishment for noncompliance), there is little incentive to collect charges that must then be sent on to the central government. In effect, it is irrational and poor management practice to waste hospital resources on such activities.

Evening clinic revenues are used to pay labor and supply costs, and to maintain the clinics’ infrastructure. Surplus revenues are handled differently in each of the three locations. In the past, El Mazad has purchased furniture and a television to entertain patients while they wait. This suggests that pleasing patients is a central concern since provider iGome is tied to patient demand for health care services. The morning clinic also has access to, and benefits from, these acquisitions. In Derdig, surpluses are handed over to the Director of Rural Hospitals and Health Centers, although the providers have recently requested greater authority to spend the surpluses. El Dibaga allows the area’s citizen health committee to apply the funds towards upgrading the health center.

These experiences in the Sudan’s Central Region indicate that competent management is possible in poor communities with a poorly educated population. Cost of fee collection where fees or taxes are involved is modest, and therefore administrative costs should not deter the imposition of fees. In addition, incentives to collect charges are critical. Poor collection rates and complaints of poor supervision and incompetent funds management, so common in PHC programs, have rarely had built-in incentives for revenue collection. The Sudan’s experience suggests that incentives may be a useful tool in improving financial management structures in LDC health care delivery programs.

CONCLUSION

The experiments discussed here have made a significant difference in the resources available to the public health sector in the Central Region. The sophisticated nature of some of these activities, such as the People’s Pharmacy and the bus and movie surcharges, do not appear to have inhibited their successful implementation. Moreover, the cost of collection, often a perceived drawback to fee-for-service plans, appears ,to claim only a minimal portion of gross revenues.

Although the experiments were conducted on a regional level, there is no suggestion that their success is tied to the characteristics of that region. Indeed, experimentation elsewhere in the Sudan with People’s Pharmacies appears to bear out this view. The experiments generally lend themselves to implementation on both larger and smaller scales, although evidence on cost shifts is not yet available. Visitors’ fees, local taxes, evening clinics and cost containment efforts (including many that go beyond those tested by the Central Province) can all be accommodated to different population sizes.

Some of the Central Province’s experiments have already been tried in other countries. The user charges for upgraded care are common in a number of countries such as Kenya and the Philippines, and subsidized pharmaceuticals are becoming of increasing interest, spurred no doubt to some extent by the contraceptive social marketing (commercial sale of subsidized contraceptives) experience in family planning (Foreit and Gorosh, 1978). Entry fees to clinics has also been tried in the Sahel (Over, 1982).

FlNANCING HEALTH CARE IN THE SUDAN 125

Cost containment and local taxation are probably the most innovative experiments. Indeed, efforts to raise revenue through both methods are warranted in many countries and could be promoted by adjustments in the incentive structure.

The scope for cost containment is broad in most health systems. In the developing countries, few incentives exist to promote efficient health care services or save resources (often because managers cannot retain savings or are penalized for spending less); ignorance of costs, lack of appreciation for containing or reducing costs and a strong preference for thorough health care regardless of cost, are further constraints. Likewise, the incapacity of local government in many countries to adjust or retain tax earnings prevents innovation in the imposition of taxes and the application of revenues within the health sector. Shifts in taxing authority, while desirable, often are a protracted process and require broad ministerial involvement.

Another conclusion that can be drawn, and one that is highly relevant to a number of LDCs, especially those whose governments have pledged free health services for all, is that free health care was maintained in the Sudan for the population who needed or wanted to use public clinics and hospitals. None of the efforts described here violated the government’s commitment to free services. Rather, the RMOH streamlined production through cost containment, charged entry fees in hospitals, taxed the population at large, offered upgraded services for modest charges and added another health care delivery service to the free and private sources of care. It is noteworthy that so many options were tapped and yet did not compromise the government’s pledge.

It also has to be recognized that, while the experiments usually produced net revenues, they did not generate large sums. To do so requires either a wealthier populace or perhaps higher fees, although that might discourage those who benefit most from subsidized health care services. Nonetheless, the experiments were able to simultaneously serve the low income population while raising modest amounts of revenue.

In summary (the Sudanese experiments detailed here deserve closer scrutiny) the findings suggest that even very poor countries can successfully raise revenues for the expansion and improvement of basic health care services, while at the same time serving low income households. Dwindling national budgets and the resulting reduction in health sector resources in the LDCs may make seeking alternative sources of funds a necessity. Experimentation with alternative models that produce revenues can alleviate some of that pressure on resources. Indeed, the approaches described here suggest that various alternatives do exist and, if properly designed and administered, can produce significant levels of net revenue.

ACKNOWLEDGEMENTS

We would like to thank the Central Ministry of Health of the Sudan and the Central Province’s Regional Ministry of Health for their assistance in this study. We would also like to thank an anonymous referee and the editor for helpful comments. We are grateful to Noel Fogarty for data collection assistance, Ali

126 A. BEKELE AND M.A. LEWIS

Musa for translation and interpretation, and Dr Mary Ann Micka for constructive comments and constant encouragement during the study’s preparation, and to USAID for supporting the data collection phase of the study.

The views expressed in the paper are those of the authors and are not necessarily endorsed by the government of the Sudan or by USAID.

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Financing health care in the Sudan: Some recent experiments in the central region

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