Procurement budgeting stalls services in state hospitals – PIDS

MANILA, Philippines - Budgeting practices for the procurement of healthcare equipment are contributing to the deficiencies in equipment and deterioration of services in government hospitals, state think tank Philippine Institute for Development Studies (PIDS) said in a policy note.

In the paper titled “How budgeting practices on health-care equipment may fail government hospitals,” PIDS said government hospitals must be prepared to respond to the increasing demand for health services now that more poor Filipinos are covered under the National Health Insurance Program.

Public hospitals are currently classified as either those managed by the Department of Health (DOH) or those run by local government units (LGUs).

Funding for DOH-run hospitals is derived from the General Appropriations Act (GAA) approved by Congress each year. This may also be augmented by suballotments from the DOH central office, hospital revenues or net income from the Philippine Health Insurance Corp. (PHIC), among other sources.

LGU-managed hospitals, meanwhile, source funds from internal revenues allotment (IRA) and the net income of LGUs. These hospitals also receive transfers from the DOH and the PHIC.

PIDS said an income retention policy is considered critical for the upkeep of hospital infrastructure and equipment.

DOH managed hospitals have been allowed since 2003 to retain their income, at least 25 percent of which should be allocated for the purchase and upgrade of hospital equipment used directly in the delivery of services. The remainder of the income retained may be used to cover maintenance and other operating expenses (MOOE) and capital outlay for other infrastructure and equipment.

No such blanket policy, however, exists for LGU-run hospitals.

“While some LGUs have created special/trust funds, most still pool hospitals’ revenues in a general fund without any guarantee that the funds would be plowed back into the contributing hospitals,” said PIDS.

The use of historic budgeting in government hospitals— in which a budget ceiling persists—also gives greater priority to covering expenses for wages of personnel and other operational expenses.

PIDS noted that based on the income retention policy, DOH-managed hospitals are given the flexibility to use a fourth of their income to fund capital investment. But because funding from the national government is insufficient to cover personnel salaries and maintenance and operating espenses, the allowed 25 percent is almost never spent on capital outlay.

Capital outlay—funds used to procure fixed assets such as property and equipment or to extend the lifespan of such acquisitions—is also not a permanent item in the budget plans for public hospitals and is funded on a “as-needed basis.”

“No system is in place to objectively determine the authenticity and urgency of the needed capital asset. This subjects the funding for capital outplay to political whims, as in the case of most LGU-managed hospitals,” said PIDS.

Public hospitals also suffer from low technical capability on budget planning for healthcare.

As such, PIDS recommends implementing a so-called capital budgeting that provides for adequate and regular allocation for acquisition of and maintenance of capital assets. This also includes the adoption of a standard maintenance cost of five percent of the original value for hospital buildings and equipment.

This would ensure that hospitals would not be utilizing equipment until these have reached operational limits.

“Decisions in what capital assets to buy or upgrade ought to depend on which one will give the highest profitability. Intelligent investment decisions must also be based on numerical data from costing studies on accurate financial reports,” said PIDS.

PIDS also recommends the conversion of the DOH’s Health Facilities Enhancement Program (HFEP) into a long-term capital investment fund the access to which would require the submission of long-term capital investment plans with corresponding maintenance programs.

“There shall be a regular reporting system that would monitor and evaluate the effectiveness of the investment including financial, clinical care, and quality of care measures,” said PIDS.

The think tank is also recommending the use of public-private partnership (PPP) arrangement for hospital equipment wherein a private partner would be brought in to invest in the hospital equipment of all DOH-managed hospitals for specific time period.