Chris James
OECD
Caroline Penn
OECD
Ivor Beazley
OECD
Camila Vammalle
OECD
Andrew Blazey
OECD
Fiscal Sustainability of Health Systems
How to Finance More Resilient Health Systems When Money Is Tight?
6. Programme and performance budgeting for health: Linking budgets to results
Abstract
Strengthening budgetary governance is fundamental to relieve pressure on public budgets for health. An important focus has been on budget classification, defined as the criteria used to formulate, present, and report on the budget. Programme budgeting – a type of budget classification grouping expenditures with related objectives – is increasingly common across OECD countries and within the health sector. The move towards programme budgeting reflects increased government interest in making health budgets more performance oriented, focusing on the outcomes of public expenditure rather than the inputs. This chapter examines OECD country experiences in programme and performance budgeting for health, highlighting key lessons learned. In the Annex 6.B, accompanying case studies of Chile, Latvia and New Zealand further detail programme and performance budgeting practices in the health sector.
Key messages
In recent decades, there has been a trend in OECD countries towards classifying budgets for health around programmes. This type of budget classification groups expenditures with related policy objectives and outcome targets.
Programme budgeting improves upon traditional forms of budgeting by aligning health sector objectives and financial resources. Furthermore, by shifting the focus away from inputs (e.g. salaries, medicines, and other supplies) towards the outcomes of health spending, this offers greater flexibility for ministries of health (and other actors with responsibility for health budgets such as social health insurance agencies) in the use of public resources, while improving transparency and accountability of the results.
The COVID‑19 pandemic brought to light the importance of budget structure. At the outset, several countries with programme budgeting used the inherent flexibility of frameworks to allocate or redirect expenditures to COVID‑19 response measures.
The impact of programme budgeting on improving the alignment of public spending with health sector priorities depends on the scope of health expenditures included within programmes. In Chile, Latvia and New Zealand, programme budgeting covers most health expenditure. While the scope is much more limited in France, Italy, the Netherlands and Sweden, with health expenditure mostly financed through social health insurance schemes or subnational governments with separate budgets for health.
The design of programme budgets for health is unique to each country. Amongst OECD countries, the number of programmes defined in the budget ranges from two programmes in France to over 25 in Mexico. In addition, programmes are aggregated and disaggregated in a variety of ways, using sub-programmes, actions or activities, or a variation of both.
Notwithstanding country specificities in how expenditures are mapped to programmes, most OECD countries organise budgets around broad health policy objectives. This gives health ministries flexibility in the input mix they use. Common broad objectives include programmes aimed at core functions of public health such as health promotion and disease prevention, digital health, and medical education and training.
In countries where the scope of programme budgeting is greater, programmes are also typically organised around the type of health services (Latvia and New Zealand), such as primary care, hospital services and long-term care.
Much less common are disease‑specific programmes or those aimed at specific population groups. These are instead typically organised as sub-programmes, to avoid creating budget silos and consequently reduce flexibility.
In nearly all OECD countries, the programme budget structure is aligned with health sector structures. Programmes are allocated to a single government entity which is responsible for the budget line. This helps ensure budget allocations map to day-to-day management of governmental departments and health provider networks.
The move towards programme budgeting forms part of the interest of governments to ensure budgets are more performance oriented. The most common approach – in over two‑thirds of analysed countries – is to include performance metrics for health within budget documents, but with no direct link between funding and results.
6.1. Introduction and key policy findings
Strengthening budgetary governance – the laws and procedures that guide the budgetary process – helps to address pressure on public budgets by focusing resources on priority areas and eliminating rigidities in the budget, thereby improving efficiency in spending. An important focus has been on budget formulation and ensuring budget structures better reflect performance. Consequently, many OECD countries have reoriented their budgets to focus on programmes – groups of activities with related objectives and key performance indicators (Kraan, 2008[1]). This approach aims to direct spending towards the achievement of policy objectives and create a clearer link between funding and results.
A move towards programme budgeting forms part of the aim of OECD countries to transition towards performance‑based budgeting. Performance budgeting refers to the use of performance information to inform budget allocations, and to encourage greater transparency and accountability throughout the budget process, by providing information to on the purposes of spending and the results achieved. The use of performance frameworks continues to increase over time and are the norm across the OECD, and in particular the health sector (OECD, 2018[2]).
The complex nature of health systems, though, has implications on how programme budgeting is introduced and managed. Countries with social health insurance systems typically raise funds from a mix of insurance contributions and government budgetary transfers. This means health insurance funds often have a budget process that is only partly linked to the government budget. Additionally, the trend towards decentralisation in health systems in OECD countries means that key budget decisions are split across central and sub-national governments (James et al., 2019[3]). The consequence is that health expenditure is defined across central and sub-national government budgets.
This chapter builds on analytical work carried out in conjunction with the World Health Organization on programme budgeting in the health sector. This analytical work is published in How to make budgets work for health: a practical guide to designing, managing, and monitoring programme budgets in health, World Health Organization, 2022.
This chapter highlights lessons learned from OECD country experiences in the implementation of programme budgeting for health. From these experiences, five key policy findings can be summarised. These findings contribute to the OECD Applying Good Budgeting Practices to Health (2023) (Vammalle, Penn and James, 2023[4]).
6.1.1. Design and number of programme budgets:
The number of programmes varies from 2 to 25 in the 13 OECD countries studied. Whilst there is no ideal number, some practical recommendations and observations from these experiences include:
Budgets should not be dominated by a single large programme, to improve accountability. Conversely, too many budget programmes can put flexibility constraints onto ministries of health (as well as increasing reporting requirements).
Budgets should follow a clear hierarchal structure to breakdown programmes – such as into sub-programmes or activities – to improve transparency on how funds are spent. However, excessive detail below the programme level should be approached with caution if this leads to an excessive administrative burden on external reporting requirements.
6.1.2. Type of programmes used within budgets:
The exact choice will be country-specific, but OECD country experiences highlight some useful categorisations and good practices:
Most OECD countries organise budgets around broad health policy objectives (i.e. improving public health, ensuring the accessibility of services). Designing programme budgets around objectives gives ministries of health flexibility in the input mix they use to achieve these objectives. Health objectives should reflect government priorities and responsibilities, allowing for better assessment of the trade‑offs between spending decisions.
Mapping expenditures to programmes by type of service delivery (i.e. primary care, secondary care, home care) is a common approach across OECD countries where the scope of programme budgeting is greater. Separate programmes for each service type can help protect funding for priority services, although it is important to consider the impact on care integration.
Disease‑specific programmes (i.e. prevention and care of HIV/AIDS) or population-based programmes (i.e. improved well-being for senior populations) are less common. These are instead typically organised as sub-programmes to maximise flexibility and reduce silos.
6.1.3. Control and accountability:
Programme budgeting increases flexibility for health and other line ministries, which means a loss of control for finance ministries over the use of specific inputs. However, OECD country experiences show that:
A loss of control does not have to mean less accountability. Indeed, programme budgeting increases accountability in the sense that it links spending to actual results. That is, it substitutes input control with control over outputs or outcomes. Further, other types of budget classification remain alongside programme budgets for monitoring and evaluation purposes, such as data on input costs for a given programme.
Ministries of finance still often retain input control for certain costs, such as administrative overheads and the salaries of ministerial staff. Administrative‑based programmes such as legal and IT services are common – a pragmatic approach to avoid having to allocate shared costs across policy programmes.
As far as possible, programme structures should align with the administrative responsibilities and service delivery functions of ministries and agencies. This helps ensure budget allocations map to day-to-day management of governmental departments and specific health providers. Although, programmes should not be organisational units under a different name.
Cross-cutting programmes should be allowed but used less frequently due to accountability issues and budget complexities. Strong inter-governmental co‑ordination mechanisms must be in place to manage risks related to supervision of the budget and ensure accountability.
6.1.4. Links between programme and performance budgeting:
Most OECD countries use performance indicators to monitor budget programmes, and these are either presented alongside budget documents, an annex or another supporting document. The choice of indicators is country-specific, but OECD country experiences suggest that:
Performance indicators should be limited to a small number of relevant indicators for each policy or programme area.
The performance budgeting framework must be robust to support the differing nature of expenditure programmes. The nature of expenditure programmes should be reflected in the type of indicators used.
Performance indicators should ideally be linked to government-wide objectives, often outlined in national health plans. This can help align and focus the programme structure and associated indicators with government priorities.
Targets for indicators are frequently used to set formal expectations about what is expected to be achieved.
There is a trade‑off between creating indicators to measure and monitor performance, and administrative burden. Some OECD countries have chosen to reduce the number of indicators.
6.1.5. Need for buy-in from both health and finance policy makers:
OECD country experiences show that for programme budgeting to work:
Finance policy makers need to entrust health ministries to deliver on specified programmes (rather than micromanage what inputs they use to achieve programme objectives and associated performance indicators).
Health policy makers should take ownership of the greater operating discretion afforded to them. This should begin during the initial stages of programme budgeting reforms, to define programme boundaries and responsibilities.
Both finance and health policy makers should use programme budgeting as an instrument of policy analysis and as a tool to focus on desired outputs.
Monitoring capabilities of programme outputs and outcomes is critical, whilst still avoiding excessive detail in reporting requirements.
6.2. Benefits and challenges to move towards programme and performance budgeting
6.2.1. Programme budgeting: Budget classifications and their implications for public spending
The budget process involves the preparation of detailed budget proposals by line ministries in negotiation with the central budget authority. This leads to an appropriation bill that is approved by legislature, providing the legal authority for making expenditures. Itemised on an appropriation bill are budget lines, specifying the most detailed and lowest level of spending that is used for authorised expenditure. Critically – given the legal status of budget lines – Ministers cannot easily reallocate resources between budget lines, except in special circumstances as defined in the budgetary legislation.
One fundamental element of budgeting is how these budget lines are classified. This refers to the criteria used to formulate, present, and report on the budget. The classification of expenditures in the budget law directly impacts how spending is carried out, and consequently the efficiency of resource allocation. Moreover, budget classification provides a framework for accountability of public spending and policy formulation.
In recent decades, there has been a trend in OECD countries towards a programmatic classification for budgets. This type of classification groups expenditures with related policy objectives.
Compared to alternative types of budget classification (Box 6.1), programme budgeting offers many benefits:
Improves flexibility: budgeting around programmes often leads to a reduction in the number of line items and increases flexibility for ministries or programme managers. That is, resources can be redistributed within a programme, without managers having to return to parliament for authorisation, as long as overspending does not occur. Flexibility for reallocating funds across programmes tends to be more limited.
Strengthens link between objectives and funding: by shifting the focus away from inputs towards the outcomes of public spending, programme budgeting aims to strengthen the link between government objectives and financial resources. This allows for clearer analysis of the trade‑offs between expenditure items, so that resources can be directed towards the achievement of priority objectives by ministries.
Increased transparency and accountability: programme budgeting improves understanding of what is being spent with public money, thereby inherently improving transparency and accountability over outputs.
In the health sector in particular, programme budgeting is important because:
Health ministries can actively engage in the definition of programmes, this shifts the focus away from inputs required to provide health services, towards the objectives, this means budgetary decisions will more closely align with health sector priorities.
Rather than rigid input controls, health ministries have greater flexibility over programme funds, so that spending can be redirected as health needs change. Greater control over the choice of inputs for health officials can also increase the efficiency of health spending.
Programmes provide a framework for accountability and performance. Programme classification of the budget facilitates measuring performance, and thus holding programme managers accountable for results. This is important for the health sector, where many actors exist. Programmes can also help increase the transparency of how public funds are spent.
Box 6.1. Budget classifications
Table 6.1 defines the different types of budgeting classifications. Traditionally budgets have been classified around inputs: inputs of similar nature are grouped together in defined economic categories, for example wages, the purchase of goods and services, and capital expenditure. This is known as an economic classification or input-based budgeting1).
A second common form of budget classification is where expenditures are organised around units responsible for administration of expenditures (known as organisational or administrative classification). Here, budgets reflect the structure of government and the distribution of responsibilities for delivering services across ministries, agencies, and levels of government.
A functional classification groups expenditures according to the purpose for which the funds are used, such as health, justice, and defence. One example includes the COFOG (Classification of Functions of Government), a general classification of expenditure which can be used for international comparisons.
Table 6.1. Types of budget classification
Source: Jacobs, D., J. Hélis and D. Bouley (2009[5]), “Budget Classification”, https://blog-pfm.imf.org/files/fad-technical-manual-6.pdf.
1. Input-based budgeting is also sometimes referred to as traditional line‑item budgeting. However, line‑item budgeting can be confused with the related but not identical term, line items, which refers to the lowest level of classification within a budget – whether or not line items are based on inputs. Hence why in this chapter the terms input-based budgeting and budget lines are used instead.
However, programme budgeting also requires careful design to mitigate against risks. Programme budgeting reduces the number of budget lines, and consequently control over the inputs used. That is, the increased flexibility for line ministries should help to achieve policy objectives, but it also means that there is a risk of the misuse of public funds.
Programme budgeting also raises the question as to whether programme structure should incorporate all types of expenditures. One area of particular concern for ministries of finance is the relaxation of input controls on the administrative budgets of line ministries. The administrative budget refers to the overall running costs of the ministry, including staff salaries and material expenses such as office equipment. Such costs are less easily attributable to a specific outcome or policy objective since they are by nature applicable to the ministry. Therefore, relaxation of input controls for these items opens the risk that too many resources are spent on such administrative items, as compared with activities that contribute directly towards programme objectives.
These risks, though, can be mitigated through additional monitoring efforts. For example, ministries of finance can require that budget estimates contain information regarding the cost calculations of programmes derived from inputs and economic items. Although inputs do not form the basis of appropriations in countries adopting programme budgeting, sufficient cost information can help finance ministries assess budget requests for a programme.
6.2.2. Performance frameworks within programme‑based budgets
The move towards programme budgeting forms part of the interest of governments to ensure budgets are more performance oriented. Performance metrics include outcomes, outputs, and inputs associated with programmes and constitute a performance budgeting framework. A strict definition of performance budgeting implies a direct relationship between performance results and allocated funds to programmes. However, in practice, it is more likely that performance indicators are used solely for presentational purposes or to inform decisions in an indirect manner (Table 6.2). This can be as contextual information to inform budget planning, and to instil greater transparency and accountability throughout the budget process.
While measuring and monitoring performance is easier when the budget is structured around programmes rather than inputs, it is still possible to measure performance when budgets are based on inputs.
Table 6.2. Types of performance budgeting
Source: OECD (2023[6]), OECD Performance Budgeting Framework, https://one.oecd.org/document/GOV/SBO(2023)1/en/pdf.
6.3. Programme and performance budgeting initiatives in the health sector in a selection of OECD countries
The health sector is often at the forefront of programme and performance budgeting reforms. The design and structure of budget programmes within health differ substantially across OECD countries, reflecting the objectives and priorities of governments as well as the characteristics of the healthcare system. To understand programme budgeting practices in the health sector, this chapter focuses on in-depth analysis of practices in 13 OECD countries: Australia, Canada, Chile, Estonia, France, Italy, Latvia, Mexico, the Netherlands, New Zealand, Norway, Spain and Sweden. The selection reflects countries at different stages of programme budgeting and varying health financing arrangements.
6.3.1. Overview of health financing arrangements in the selected countries
To analyse the 13 aforementioned OECD countries, it is important to understand their type of health financing arrangements. Health financing arrangements are commonly classified into three main types: national health systems (including those with decentralised local services), single health insurance funds or multiple health insurance funds/companies. Table 6.3 summarises the main financing arrangements in the selected countries.
Table 6.3. Overview of health financing arrangements
Source: OECD Health Systems Characteristics Survey, authors’ analysis of survey results.
In national health systems, a large proportion of overall spending on healthcare comes from the national government budgets. By contrast, in healthcare systems financed by compulsory health insurance schemes (whether organised by single or multiple funds), government expenditure on healthcare as defined in the budget may represent a small proportion of overall public healthcare expenditure. Social insurance systems may have budgets separated from the central government budget, that may not be subject to legislature review, may occur on a different timeline, or follow different budgeting procedures to the central government budget. In the Netherlands, the budget for the compulsory health insurance scheme is determined through a process led by the government but separated from the general budget process. Similarly, in France, parliament votes on two separate budgets: the central government budget, and the social security budget (containing revenues and expenditure of the single payer health insurance fund).
Nevertheless, many social health insurance systems rely on transfers from central government budgets. For example, in Chile, 68% of the revenues of the social insurance system come from government transfers (OECD, 2023[7]). Moreover, the ministry of health usually defines the benefits package and sets health policy goals and may still be involved to some extent in the management of resources.
In addition, in many OECD countries, sub-national governments play a significant role in the health system. The consequence is that health spending is distributed across central and sub-national budgets. Budget procedures at the sub-national level operate with a varying degree of autonomy from national budgeting procedures. Thus, national budget reforms – such as programme and performance budgeting – may not always translate in similar procedures being adopted in sub-national governments. Sub-national spending on healthcare is low in Estonia, France, Latvia, the Netherlands and New Zealand. In contrast, health is decentralised in countries such as Australia, Canada, Italy, Norway, Spain and Sweden.
6.3.2. History of programme and performance budgeting initiatives
Across the 13 OECD countries, programme budgeting initiatives are at various stages of development. Australia, Canada, New Zealand, Spain and Sweden have long established programme budgeting frameworks in place. In Spain, the change in budget classification came through legislature, from the introduction of a Budget Act in 1977 requiring line ministries to formulate the budget by programmes. Australia began a process of budget reform in 1984 to remove the tight controls on the management of public resources. Sweden’s budget formulation process underwent fundamental change in the late 1990s, with all government appropriations re‑grouped into expenditure areas and programmes.
Latin American countries Chile and Mexico also have a long history of programme and performance budgeting. In Chile, reforms date back to 1993 when the National Direction of Budgeting (DIPRES) of the Ministry of Finance implemented a pilot with performance indicators in five public institutions. From 2001, DIPRES has in place a results-based budgeting process covering all the major institutions across the public sector. The budget in Chile is divided into entities (“partidas”), sub-entities (“capítulos”) and within each sub-entity, budget lines are grouped into programmes. Mexico also has a long history of programme budgeting, with programmes initially introduced in the 1970s. Further reforms took place in 2008 to develop a performance budgeting system with a new programme structure, requiring that the budget includes objectives, goals, and indicators for programmes and performance evaluations to confirm the achievement of these goals.
During the early 2000s, European countries such as France, the Netherlands, Latvia and Italy also undertook budget reform. In 2001, the Netherlands used a ‘big bang’ approach to move towards programme budgeting, focusing heavily on performance information. France introduced a new organic budget law ‘Loi organique relative aux lois de finances’ (LOLF) in 2006, which included a restructuring of the budget around programmes. In Latvia, the Cabinet of Ministers approved a new programme‑based budget format with a three‑year perspective in 2006. A wave of reform in Italy in 2009 led to a new budget structure based on missions and programmes. This was an attempt to reduce the number of line items, which previously stood at around 7 000, to 181 programmes across government in 2015.
Finally, in Estonia, the Ministry of Social Affairs, as part of 2014 reforms transitioned towards an activity-based budget, which includes presentation of the budget by programmes. The change was triggered by several challenges, including concerns that planning and budgeting process existed as separate worlds, a strong focus on inputs and lack performance and evaluation, and significant pressure on budget costs.
6.4. Design of programme‑based budgets for health across OECD countries
6.4.1. Scope of programme budgeting for health
Table 6.4 shows the analysed OECD countries and the focal budget of analysis, which is predominantly the budget for the ministry responsible for health. However, areas outside this containing budget lines for health were also considered. Analysis includes some sub-national governments in Australia, Canada and Spain, where sub-national government have extensive responsibilities for delivering health services and have also re‑classified budgets by programme.
The scope of programme budgeting in the health sector varies considerably across OECD countries. Table 6.4 classifies countries based on the degree to which public expenditure on health is included in programme budgets. With sub-national governments and social insurance institutions playing a significant role in some health systems this can limit the scope of programme budgeting, as expenditure is contained in a separate budget with a different classification (e.g. line‑item, entitlement-based).
In four OECD countries – Chile, Latvia and New Zealand – programme budgeting covers most health expenditure. In New Zealand and Latvia, this includes expenditure of the national health system. In Chile, the programme budgeting framework includes the financing for FONASA, the health insurer for the public health system.
For Australia, Canada, Mexico, Norway and Spain, programme budgeting covers some health expenditure, including national level health agencies and central ministries, and has been implemented by some or all sub-national governments.
In the remaining countries, the scope of central government programme budgeting in the health sector is more limited, only including core expenditure of the ministry of health, focusing on public health and stewardship functions (monitoring, regulation, and supervision). This is the case in France, Italy, the Netherlands and Sweden, Instead, most health expenditure is included in the budgets of sub-national governments (Italy, Sweden), or through single or multiple health insurance funds (Estonia, France, the Netherlands). In Estonia, the Estonian Health Insurance Fund (EHIF) is responsible for most expenditures on health. There is no direct connection between the central government programme budget and the EHIF budget. This has raised accountability concerns regarding how funds are used to achieve the strategic objectives outlined in the programme budget.
Table 6.4. Overview of programme budgeting design in selected OECD countries
Note: This table relates to the number of health programmes at the central government level. In this chapter, a programme refers to the level defined in the budget appropriations bill and where the authorisation of spending takes place. See Annex 6.A for inventory of programme budgets for health. SNG refers to sub-national government, SHI refers to Social Health Insurance system.
Source: From an analysis of 2021/22 budgets for health expenditure.
6.4.2. Number and size of budget programmes for health
The number of budget programmes in health varies markedly across OECD countries (Table 6.4). The budgets for health in Estonia and France contain a very low number of programmes, while in Mexico, the budget contains over 25 programmes for health.
While it is difficult to prescribe the exact number and size of budget programmes, some observations can be made:
A budget dominated by large programmes makes it difficult to compare trade‑offs when costs and objectives vary extensively. For example, in Mexico, the budget is dominated by a two large programmes, with the remaining programmes being significantly smaller, which poses a challenge for spending prioritisation (Lakin, 2018[8]). This was also the case in Latvia, where a change to the programme budgeting structure saw a breakdown of a major programme into smaller sub-programmes to help the transparency of expenditures (see Annex 6.B).
A budget containing many small programmes can also present challenges by complicating the budget process, and creating rigidities meant to be eliminated by programme budgeting. Except for Mexico, this has been avoided by OECD countries. Even in countries with a high number of total budget programmes, these are split among different agencies (e.g. Australia).
Several countries with the most experience of performance budgeting have steadily reduced the number of health programmes over time, such as Australia, Canada, France and New Zealand (OECD, 2019[9]). 2022 reforms in New Zealand significantly reduced the number of appropriations from over 50 to 20 for health, with the hope that a smaller set will provide for Parliamentary authorisation at a more meaningful level (Department of the Prime Minister and Cabinet, New Zealand, 2022[10]).
6.4.3. The breakdown of budget programmes improves transparency
Programme structure is unique to each country, meaning that programmes are defined, and aggregated and disaggregated in a variety of ways (Table 6.5).
Table 6.5. Programme hierarchical structure across selected countries
Source: From an analysis of 2021/22 budgets for health expenditure.
Many countries include more than one level of hierarchy. Some disaggregate their budget using sub-programmes, actions or activities, or a variation of either. This aids with transparency and gives greater insight into the intended programme outputs or outcomes. France, for example, uses actions to break down the low number of programmes (Box 6.2). Estonia has one of the more complex programme hierarchies, containing four levels on budget documents, with an additional higher level for strategic planning, and two lower levels for agency management. Although more complicated, initial findings from the Estonian reform suggest the programme hierarchy is clear and has given transparency and a strong accountability system.
In contrast, only Chile, Mexico, and the autonomous region of Catalonia in Spain, include only one level of programmes. In Mexico, although there are no sub-programmes, a detailed four‑tier indicator structure exists for each programme (see Box 6.13).
Box 6.2. Programme hierarchy: France
In 2001, France enacted a new Organic Budget Law, marking a shift to a programme‑based budget. According to this new approach, the entire central government budget is divided into a consistent hierarchy of missions, programmes, and actions (Figure 6.1).
Figure 6.1. Programme hierarchy
Source: Loi organique relative aux lois de finances 2001.
A mission covers a series of programmes designed to contribute to a specific public policy. A mission can involve a single ministry or several ministries. The parliament cannot change or adjust the missions. The health mission covers state health expenditures.
A programme covers a set of activities of a single ministry targeted to a specific public policy objective. A programme director is appointed for every programme, and resources allocated to a particular programme cannot be spent by the ministers for another programme. The Ministry of Solidarity and Health has responsibility for the health programmes.
An action covers a set of operational means to implement the programme. The budget breaks down resources allocated to each action, however, this breakdown is indicative and not binding. There is a high degree of freedom for expenditure choices for ministers to meet the programme’s forecasted performance. There is one exception to this, which is that appropriations for personnel are binding in an asymmetrical way: personnel appropriations can be used for other purposes, but appropriations for other purposes cannot be used for personnel costs.
Source: Moretti and Kraan (2018[11]), Budgeting in France.
6.5. Types of budget programmes used for health in OECD countries
Programmes are defined as groups of expenditures with related policy objectives. However, health spending varies in nature, with some spending not neatly fitting into a single priority area. Therefore, health programmes also commonly include service‑based programmes (at a given level of care or type of service); and support programmes related to general administration expenditures (Table 6.6).
Table 6.6. Common types of health programmes
Source: Constructed from an analysis of 2021/22 budgets for health expenditure.
Across OECD countries there is a wide divergence in the types of programmes used for health. Many countries (11 out of 18) use a hybrid approach to programme budgeting, using a mix of programme types (Table 6.7). Almost all countries (16 out of 18) use a health policy-based programme classification at the top hierarchical level (countries also often break this down into lower-level sub-programmes or equivalent). No country uses only an administrative based programme structure, only one country, Norway, uses exclusively a service‑based programme structure.
The following sections provide a detailed analysis of the practices of countries in each of the three types of top-level programme types for health.
Table 6.7. Overview of top-level programme types for health
Note: See Annex 6.A for inventory of programme budgets for health.
Source: From an analysis of 2021/22 budgets for health expenditure.
6.5.1. Policy-based programmes are the most common programme type
Policy-based programmes group spending items which aim at achieving a common health objective together. There are four main types of policy-based categories: public health, disease specific, population-group specific and health system strengthening (Table 6.8). Almost all countries have a programme for public health (17 out of 18), and most countries have a programme for health system strengthening (13 out of 18). Most countries (11 out of 18) use two policy-based programmes, only five countries use more than 2, and none uses only one.
Table 6.8. Categories of policy-based programmes
1. Excluding programmes for COVID‑19 response measures.
Source: From an analysis of 2021/22 budgets for health expenditure.
Public health programmes
Nearly all countries have programmes specifically aimed at improving public health through health promotion and disease prevention policies. Ministries assume this role not only to improve well-being, but to reduce the burden on the health systems and pressure on public budgets. Often programmes are targeted at promoting healthy behaviours and protecting citizens from public health threats, such as infectious diseases or environmental risks. Vaccination and immunisation campaigns were often included as sub-programmes or activities, along with tobacco control and promoting cancer screenings.
For example, the budget in Latvia contains a programme to implement public health promotion policy through disease prevention and health promotion activities. In 2021, this programme represented 0.4% of the publicly funded health budget. France has a budget programme for “prevention, health security and healthcare”. The programme aims to improve population health status, reduce territorial inequalities, and prevent and control health risks. The budget for the state of New South Wales, Australia contains programmes based around high-level outcomes, with an outcome focused on “keeping people healthy through prevention and health promotion” (Box 6.3).
Box 6.3. Outcome budgeting: New South Wales, Australia
Since 2017, New South Wales, Australia has followed the “Outcome Budgeting” approach with the aim of allocating resources based on the outcomes achieved for people, not the amount spent, and shifting decision-making away from increments. Budget appropriations are in the form of high-level Outcomes and Programmes:
Outcomes articulate the primary purpose for which public resources are being spent, and the goals that government is seeking to achieve for its citizens and businesses across all its activities.
Delivery of each Outcome is supported by Programmes that are a collection of Government activities, tasks, divisions, or functions to deliver specific objectives towards the Outcome.
The 2020/21 budget contained five Outcomes for health (Table 6.9).
Table 6.9. States Outcomes for Health, New South Wales
Source: New South Wales (2020[12]), Budget Paper No. 2.
Disease specific programmes
Disease‑specific programmes less common across OECD countries. Disease‑specific programmes are groups of expenditures aimed at a specific disease, and include activities such a disease prevention, diagnosis, treatment, and research. The budget in Mexico, for example, includes programmes for the prevention and care of HIV/AIDS, as well as prevention and control of obesity and diabetes. In addition, Australia has a programme to minimise the impacts of cancer, through national leadership in cancer control with targeted research and clinical trials, evidence informed clinical practice, strengthened national data capacity, and community information and support.
Disease‑specific actions are often built into programmes as sub-programmes or activities. For example, in Estonia disease‑specific activities are integrated into the “healthy choices” programme of the Ministry of Social Affairs (Box 6.8). Similarly, in Canada, departmental plans contain expenditures for each appropriated department, and outline disease‑specific sub-programmes, such as cancer control.
Box 6.4. Incorporating disease‑specific activities: Estonia, Ministry of Social Affairs
In Estonia the “healthy choices programme”, includes disease‑specific activities, such as reducing HIV/AIDS and tuberculosis infection (Table 6.10). These activities are not specified on budget documents, but rather included within the budget management documents of Ministry of Social Affairs.
Table 6.10. Healthy choices programme, Estonia
Source: Ministry of Social Affairs, Estonia, 2021.
With the onset of the COVID‑19 pandemic in 2020, several countries utilised their programme budget framework to flexibly incorporate pandemic-related expenditures. Countries redirected spending within programmes towards the emergency response measures or created new COVID‑19 expenditure programmes.
In New Zealand, the Vote Health 2021/22 contained new budget appropriations dedicated to the COVID‑19 response including the “national health response to COVID‑19”, “minimising the health impacts of COVID‑19”, and “implementing the COVID‑19 vaccine strategy”. In Latvia, the programme budgeting structure incorporates a programme for the implementation of unforeseen measures, titled “contingency funds”. The programme financed the response to the COVID‑19 pandemic. France created new budgetary programmes as a means of allocating expenditures to the COVID‑19 response. Following the framework of the annual budget, the supplementary budget contained a new budgetary mission “Contingency plan for the health crisis”, divided into two new programmes and related actions.
Population-group programmes
Population-group programmes aim at addressing the health needs of a specific population group. Typically, these programmes target population groups with below-average health outcomes, or specialised health needs.
For example, Australia has a programme for aged and ageing care, aimed at “improved well-being for senior Australians through targeted support, access to appropriate, high quality care, and related information services”. The health protection programme in France covers the healthcare costs of the most vulnerable populations, including destitute foreigners who cannot access universal health protection as they do not meet the conditions for regular residence. The budget in the Netherlands contains a programme with the policy objective of improving youth healthcare. While New Zealand has a budget programme for providing Māori health services and ensuring that all health services are delivered in a way that promotes equity and is in line with the original treaty with Maori (The Treaty of Waitangi).
Health system strengthening programmes
Most countries have programmes targeted at health system strengthening. Often ministries of health assume a leadership role within the health system, ensuring all citizens have access to health services. Therefore, countries frequently include programmes organised around policies for a better performing health system. Policy objectives include increasing access, improving the quality, or ensuring the sustainability of health services. These objectives are often achieved through sub-programmes or activities such as digital health initiatives including investing in health information systems, funding health research and training, and measures to improve the quality and distribution of the health workforce.
For example, in Canada, the “Healthcare System” programme aims to ensure Canada has a modern and sustainable healthcare system, and that Canadians have access to appropriate and effective healthcare services. The programme is delivered through activities such as digital health and health information initiatives. The Ministry of Health works in close co‑operation with regional and territorial governments to deliver the programme. The Ministry of Social Affairs in Estonia has a programme on people‑centred healthcare, to ensure “the availability, quality and safety of health services, and public awareness and satisfaction with health services”. In the Netherlands, the budget contains a programme for care‑wide policy, to “further optimise the health system so that the quality, accessibility and affordability of care remain guaranteed for citizens”. (Box 6.5). The budget in Sweden contains a programme on “performance‑based efforts to reduce waiting times”. The programme objective is to reduce waiting times by providing performance‑based government grants to the regions to work continuously to shorten queues and waiting times and to improve accessibility in healthcare.
Box 6.5. Policy-based programme budgeting: Netherlands
Programme budgeting reforms in the Netherlands were introduced nearly two decades ago. The budget focuses on policy objectives i.e. the results of budget programmes. Instruments for each programme detail how the policy objective will be achieved. Each programme, known as policy articles, must follow a reporting template, this includes:
Policy objective
Role and responsibility of government
Policy changes since previous years
Budgetary impact of policy (including budgetary flexibility)
Explanation of financial instruments
The budget for the Ministry of Health, Welfare, and Sport is organised around eight policy articles (with six related to health) (Table 6.11). There are further non-policy articles, which contain costs that cannot be meaningfully allocated across policy articles.
Most of the budget is allocated to the curative care programme, which covers the health insurance premiums over children under 18, and to the long-term care programme. The care‑wide policy programme aims to improve the quality, accessibility, and affordability of healthcare through actions such as strengthening patient involvement in healthcare decision making, upgrading ICT systems, and increasing opportunities for health workforce training.
Table 6.11. Policy articles and objectives for the Ministry of Health, Welfare and Sport
Note: Policy Article 6 and 7 are not shown as they relate to non-health articles.
Source: Rijksbegroting (State Budget) 2021.
6.5.2. Service‑based programmes are also frequently used across OECD countries
In countries where the scope of programme budgeting is greater, programmes are also typically organised around the type of health service. Service‑based programmes are groups of expenditures organised around the type of health service provided or by the level of care, for example primary, secondary, or tertiary care. For example, the budgets in Chile, Latvia, New Zealand, Norway, and the autonomous region of Catalonia contain service‑based programmes (Table 6.12).
Table 6.12. Examples of health service‑based programmes
Source: From an analysis of 2021/22 budgets for health expenditure.
The budget for Chile contains service‑based programmes for primary and secondary care financed through the national health fund (FONASA). A dedicating programme for primary care can create greater visibility and protect resources for primary healthcare (Hanson et al., 2022[13]), although only a small number of OECD countries include central level programme dedicated to primary healthcare (Box 6.6).
Box 6.6. Primary healthcare and programme budgeting
The COVID‑19 pandemic brought into the light the need for a well-functioning primary healthcare system. The government budget is the primary instrument for allocating funds to primary healthcare. Establishing an appropriate programme‑based budget can make financial allocations to primary healthcare more visible and better protected from transfers to other services such as hospitals. Budget rules and statutory appropriations, which mandate minimum budget shares for specific services, can also help to ensure sufficient allocations to primary healthcare (Hanson et al., 2022[13]).
Chile, Latvia and New Zealand have dedicated primary healthcare programmes at the national level. New Zealand has separate appropriations for primary care and for hospital services, with the aim to control funding transfers between services and protect funding for primary care. In addition, sub-national governments in Australia, Canada and Spain that have moved towards a programme‑budget also have distinct primary healthcare programmes.
For other countries, such as Italy, allocations to health are made at the central level through a single line for each geographical area, with little or no visibility of the allocation to primary healthcare. Alternatively, primary healthcare spending is included in a separate budget for the social health insurance fund (France and the Netherlands). Mostly commonly at the central level, there are targeted programmes for specific public health policies, such as vaccination, disease prevention, or child health, but these are not the main source of financing for primary care services.
In Latvia, health services are organised into specialised and non-specialised healthcare provision, where the sub-programmes follow the “level of care” logic. In Norway, the budget for the Ministry of Health and Care services is organised around programme areas and categories. The largest programme area is for “specialised health services”, which finances the regional health authorities to provide diagnostics, treatment, and follow-up of patients with acute, serious, and chronic diseases and health problems. Primary care, social care and mental health services are predominantly financed and delivered at the municipal level. However, the programme “municipal services” provides central government grants for the development of municipal services, acting as a secondary source of finance. Finally, the budgets for health of the provincial governments of Alberta and Ontario, Canada are organised around service‑based programmes at the sub-programme level (Box 6.7).
Box 6.7. Service‑based programme budgeting at the sub-national level: Canada
In Canada, the federal budget includes expenditures of the Health Portfolio. The Health Portfolio is comprised of five government agencies, aiming to improve and maintain the health of Canadians. However, heath care is predominantly delivered through the 13 provincial and territorial systems, through a public system known as Medicare, which accounts for around 90% of public spending on health (Canadian Institute for Health Information, 2016[14]).
Each provincial or territorial government has a ministry of health or equivalent and subsequent budget for health. Provincial governments have autonomy over the adoption and implementation of fiscal management practices and processes; however, these practices and processes must be in line with generally accepted principles of good governance (including transparency and integrity) (Paul-Émile Arsenault, 2011[15]). The three territorial governments have less autonomy in public financial management.
In Ontario, health spending for parliamentary approval is presented as programmes (known as Votes), and sub-programmes (known as items). These are primarily defined by the type of services delivered. Seventy percent of the of projected health spending is contained in just two programme votes, the Health Services and Programs and the Ontario Health Insurance Program. The Ontario Health Insurance Program funds coverage for over 6 000 healthcare services provided by physicians, optometrists, dental surgeons and podiatrists, and drug programmes. The Health Services and Programs Program covers the operation of hospitals, community care, and mental health and addictions.
Similarly, Alberta presents appropriations by programme and sub-programme. The health Vote contains 15 programmes. Programmes are primarily service‑based, organised around the type of health service provided (Table 6.13). For example, the largest programme – “Alberta Health Services” – includes sub-programmes for community care (health services provided in a community setting, such as group homes), acute care (hospital-based acute inpatient services to provide necessary treatment for a disease or severe episode of illness or injury), and continuing care (facility-based continuing care such as designated supportive living, long-term care, hospice and end-of-life care, delivered by Alberta Health Services or contracted providers).
Table 6.13. Programme budget, Alberta, Canada
Source: Budget 2021, Government of Alberta.
6.5.3. Administrative based programmes help overcome some of the challenges of programme budgeting
A common issue faced when transitioning towards a programme budget structure is whether all costs should be incorporated into the programme framework. Ideally, programmes should group all resources contributing to the achievement of objectives, including salaries, goods and services, subsidies and transfers, and investments (gross budgeting) (OECD, 2019[9]). However, ministries of finance often want to maintain partial control on the choice of inputs to prevent the misuse of resources. Therefore, some countries that have moved towards a programme budget have maintained separate line items for certain costs, to ensure that spending is used to directly contribute towards achieving programme outcomes, rather than, for example, increasing wages. These separate line items can include large‑scale investments, infrastructure maintenance and salaries of staff (either all civil servants or limited to those in general oversight roles).
Other countries may choose to allocate costs to programmes that support the health system rather than directly provide health services. This can avoid the burden of trying to meaningfully allocate costs across programmes, or to creating a mechanism to share the costs. Examples of different approaches are given in Box 6.8.
Box 6.8. Approaches to administrative based programmes
In Canada, the federal budget contains a programme for “internal services”. This programme consists of groups of related activities and resources that the federal government considers to be services in support of programmes and/or required to meet corporate obligations of an organisation. Examples of these services include legal services, human resources management services, financial services management, and information technology services.
Latvia has a programme for sector management programmes, including programmes for payments to international organisations, and programmes for the implementation of EU programmes.
The programme budget in Mexico contains a programme for administrative support activities in the health sector, covering operating costs. This mainly includes payroll for personnel in the administrative areas, as well as basic operating costs for the health administration such as electricity, water, gas, telephone, taxes, property insurance, surveillance, cleaning, leasing of computer equipment for buildings and vehicles.
The Netherlands defines its programmes into policy articles and non-policy articles. Spending included in non-policy articles contains expenditure that is viewed as not being able to be meaningfully allocated in a specific policy article, such as spending on staff and material expenses of the ministry, expenses related to international co‑operation, and unforeseen expenses to account for changes in prices or wages.
New Zealand includes an appropriation for “other expenses”. These expenses are a residual type of expense appropriation that covers expenditure that is not readily classified into programmes. For the health sector, this includes subscriptions for memberships of international organisations and legal expenses for funding the defence and settlements of health-related or disability related legal claims.
6.6. Aligning responsibilities for programme‑based budgets with organisational structure
A key question when transitioning towards a programme budget is how the programme structure should be aligned with the existing organisational and administrative responsibilities in the health sector. Some programmes cut across the organisational structure, requiring several departments to work together. In health systems where fragmentation exists due to decentralisation and insurance agencies, co‑ordination across a wide range of agents may be needed to achieve policy objectives.
The programme budget structure is aligned with health sector structures in all OECD countries except Mexico and Spain. Programmes are allocated to a single government entity which is responsible for the budget line.1 However, in most cases, entities are responsible for multiple programmes, and therefore must be able to control the direction of resources between programmes. This is the occurrence in Australia, Canada, Latvia, the Netherlands and New Zealand. In contrast, government agencies in Italy and institutions in Chile, are typically responsible for a single programme. While it is preferable that programmes align with the existing administrative structure, programmes should not be organisational units under a different name (Box 6.9).
Box 6.9. Organisational structure of programmes: Italy
A reform in 2009 in Italy led to the restructuring of the budget around missions and programmes. The budget was re‑organised into 42 missions and 165 programmes. For the most part, administrative entities are only responsible for a single programme. As a result, the new missions and programmes are simply an “overlay”, with little relevance or impact for budgeting (Blöndal, von Trapp and Hammer, 2016[16]). The table below shows part of the budget for the Ministry of Health, and the breakdown of programmes into administrative units and actions.
Table 6.14. Ministry of Health Budget, Italy
Source: Ministry of Finance and Economy, Italy, 2021.
The total budget of the National Health System, and most of the expenditure on health, however, is determined through budget law and allocated to regional governments using a capitation-based formula. This expenditure is not included within the mission and programmes framework.
In Mexico and Spain (including the autonomous region of Catalonia), the programme budgeting structure does not fully align with the organisational structure of the health sector. In Mexico, budgetary programmes in the health sector are the joint responsibility of up to 34 different administrative units to meet objectives and goals. However, for the purpose of simplicity, only a single administrative entity is required to report on performance. In Spain, budget programmes are the responsibility of multiple health agencies (Box 6.10.).
Box 6.10. Executing budget programmes: Spain
In Spain, the state budget is divided into expenditure policies, programme groups, and programmes. The ‘health’ expenditure policy contains three programme groups and eight programmes. Budget programmes are multi‑annual and are defined as the expenditure considered necessary for the activities to achieve pre‑established objectives.
Budget programmes are executed by multiple health agencies. However, budget documents specify the detailed actions of each agency. Programmes also demonstrate a line of collaboration with different areas of government to meet their objectives.
Table 6.15. Health policies and professional regulation programme, Spain
Source: Ministry of Finance, Spain, 2021.
Although OECD countries generally avoid cross-cutting programmes, many demonstrate how programmes work together across policy areas to achieve cross-cutting goals. This approach recognises that health objectives have determinants that are outside of the control of the Ministry of Health. As with many health outcomes, only a proportion of the intended result may be attributable to healthcare. Various social and economic factors also contribute strongly to health outcomes, including income, unemployment, and education. In New Zealand, for example, all new spending initiatives are required to demonstrate how they have engaged across agencies and portfolios. In Australia, budget outcomes are linked to other programmes from all government entities that contribute to their achievement. In Estonia, programmes have a principal programme manager, however, other agencies are designated ‘co-responsible’ for programmes.
6.7. Performance frameworks within programme‑based budgets
All analysed OECD countries include performance indicators to monitor the progress of budget programmes, as part of a performance budgeting framework. For ministries of health, performance budgeting can improve internal decision-making and contribute towards a stronger case for funding requests. Introducing performance information can also improve transparency and accountability in terms of understanding how public resources are spent and what are the results.
Performance‑informed budgeting is the most common approach (Figure 6.2) i.e. performance metrics for health are included within budget documents, but there is no direct link between funding and results. For example, the Organic Budget Law in France prescribes an extensive performance reporting process for the Ministry of Solidarity and Health to integrate performance information into the budget system through the two types of mandatory budget documents: annual performance plans (projets annuels de performances) and annual performance reports (rapports annuels de performances). In Latvia, performance metrics are included within budget documents in the form of a performance scorecard for each health policy area. Each year, the results of the performance scorecard are analysed, and can be used as a justification for increasing or decreasing funding during the budget formulation stage. In Canada, Departmental Plans describe the mandate, mission and strategic objectives for each department and agency under the health portfolio.
Presentational performance budgeting for health – where performance metrics are presented separately from the main budget document – exists in three countries. In Australia, Portfolio Budget Statements (PBS) are separate documents detailing annual appropriations and include the set of outcomes, programmes, and key performance indicators for the health portfolio. In Italy, the “Integrative Note” is attached to the state budget and contains spending objectives and key performance indicators for each budget programme of the Ministry of Health.
Figure 6.2. Approaches to performance budgeting for health in analysed OECD countries at the national level
Note: Refers to the central-level health budget as defined in Table 6.4. See Section 6.2.2 for the definitions of the different approaches to performance budgeting.
Source: OECD Survey (2021) Macro-level management of health expenditure, with a special focus on multi‑annual financial planning for health, OECD Survey (2018) Performance Budgeting Survey.
Only in Norway is there a direct link between programme funding and performance results, however, this only covers a very small proportion of the health budget (Box 6.11).
Box 6.11. Quality-based financing: Norway
The health system in Norway is divided into four Regional Health Authorities, responsible for providing secondary care to their population areas. Previously, Regional Health Authorities were funded using a mixture of block grants and activity-based financing. However, in 2014, Norway introduced a performance‑based financing scheme known as quality-based financing. The financial incentive aims to increase overall quality and patient care.
Quality-based financing consists of a redistribution of the block grant based on a set of performance indicators and quality criteria for hospitals from the Norwegian National Quality Indicator System. Indicators are categorised into three types:
Outcome indicators
Process indicators
Patient satisfaction indicators
The redistribution is made based on the achievement of indicators. The quality-based financing represents around NOK 500 million or approximately 0.5% of the health regions’ total block grant budgets.
Source: Beck Olsen, C. and G. Brandborg (2016[17]), Quality Based Financing in Norway.
Sub-national governments and social health insurance agencies have also moved towards more performance‑orientated budgeting. For example, in 2012, Alberta initiated a Results Based Budgeting Act, requiring the Government of Alberta to review the relevance, effectiveness, and efficiency of all government programmes and services. Since 2012, the results-based budgeting process has reviewed over 500 programmes, including primary care and health benefits, and acute and continuing care. The process produces a set of recommendations, which are used to make programmes and services more cost-effective and aligned with the priorities and needs of Albertans (Government of Alberta, 2016[18]). Similarly, New South Wales, Australia integrates indicators into budgets to facilitate performance‑informed decision making and promote transparency on the performance of Government agencies.
6.7.1. Performance indicators measure the progress towards programme goals and outcomes
Performance information is at the core of performance budgeting frameworks to inform and provide context for budget allocations. The volume of performance information included within budget documents varies substantively across OECD countries (Table 6.16). Spain tracks over 400 performance indicators alongside health budget programmes. In comparison, the volume of performance indicators in budget documents is lowest in Estonia, France, Latvia and Norway.
Table 6.16. Number of performance indicators included in performance budgeting frameworks for health at central level
Note: The health budget refers to the central health budget as defined in Table 3.2.
Source: From an analysis of 2021/22 budgets for health expenditure.
Some OECD countries are choosing to reduce the number of performance indicators included in budget documents. This is true in Chile, France, Italy, Mexico, New Zealand and Norway. Early efforts to move towards a performance‑based budget in the Netherlands resulted in a high number of performance indicators being tracked in budget documents. This led to high administrative burden for line ministries, and budget documents that contained lengthy and often irrelevant information. Reform in 2011 reduced the number of performance indicators in budget documents (Kooij, 2017[19]). Between 2011 and 2021, France reduced the number of indicators for Ministry of Health programmes from 23 to 9. Indicators chosen must be relevant, auditable, and useful, and they must give priority to measures that can be used to improve services or reduce costs. Indicators that do not respond to strategic goals or large budget items should no longer be reported. In New Zealand there needs to be strong justification for the inclusion of new performance indicators, and these generally replace existing indicators, to ensure that the number does not increase over time.
6.7.2. Using a mix of indicator types
A common way to classify different types of indicators is by different stages of programme implementation. Indicators can be used to measure the inputs, activities, outputs, or outcomes of a programme (Table 6.17). Indicators are also commonly classified into those that measure quality or those that measure efficiency.
Table 6.17. Types of performance indicators
Source: 2018 OECD Performance Budgeting Survey Glossary.
Outcome indicators are the most commonly used indicator in performance frameworks across analysed OECD countries. Examples include measures of life expectancy, and population risk factors such as smoking, alcohol consumption and obesity rates. Outcomes are a broader performance measure than outputs and their measurement is therefore generally harder since factors outside the health sector also play a role in influencing outcomes. In Australia, the central budget is structured around the intended outcomes of government spending by entities. However, the government has struggled ensuring that budget outcomes are attributable to the government entities responsible for them (Box 6.12).
Box 6.12. Outcome budgeting: Australia
In Australia, the central budget is structured around the intended outcomes of government spending. In the earlier years of outcome budgeting, concerns were raised over the specificity of outcomes, with many being too broad. This led to confusion over how public money had been spent, and the problem that outcomes could be attributable to the work of other government sectors. There were also concerns that spending could be shifted between outcomes for political purposes without parliamentary approval. A review in 2008 of the outcome framework concluded that budget outcomes must be more detailed and meaningful and must report an additional sub-level of detail (Australian Government, 2008[20]). Table 6.18 shows the evolution of outcomes for the Department of Health. Outcomes became tighter with more binding descriptions, along with improved reporting on measurable targets and performance indicators.
Table 6.18. Outcome framework in Australia
Source: Australian Government, Portfolio Budget Statements archived.
Many countries track different types of performance indicators to help to ensure that both short term progress and long-term goals are captured. For example, the performance framework in Mexico includes four levels of performance indicators (Box 6.13). Latvia’s performance framework includes input, performance, quality indicators, and outcome indicators. Performance indicators in Canada measure programme inputs such as expenditure and workforce numbers, as well as high-level outcomes such as unmet need for healthcare.
Box 6.13. Performance indicator structure: Mexico
In 2007, Mexico developed the Performance Evaluation System (Sistema de Evaluación del Desempeño, SED), an instrument to measure the performance of budget programmes. This covers all Ministry of Health programmes, such as prevention of diseases and addictions, vaccination, training of medical professionals, protection against sanitary risks, and epidemiological surveillance.
Performance indicators are reported through the Matrices of Indicators for Results (MIR), a four‑tiered indicator structure for each programme. The indicators follow a vertical logic, in that there is a causal relationship from the activities up to the final goal (Figure 6.3).
Figure 6.3. Indicator hierarchy
Source: Lakin (2018[8]), “Program Budgeting for Health Within Mexico’s Results-Based Budgeting Framework”, https://internationalbudget.org/wp-content/uploads/case-study-health-budget-programs-in-mexico-ibp-2018.pdf; Secretaría de Hacienda y Crédito Público, (2022).
6.8. Conclusions
Many OECD countries have had a long history of programme budgeting – both across government and applied to the health sector – whereby programmes form the basis of budget appropriations. Isolating the impact of programme budgeting reforms on the efficiency and effectiveness of health spending is difficult. However, countries commonly cite programme budgeting reforms as a critical driver for relaxing tight spending controls for health agencies, and for improving transparency over how public resources are spent. At the same time, the operationality of programme budgeting for health can still be improved. In several OECD countries, despite programmes becoming the basis for budget appropriations, this is only an overlay – with budget execution still operating on the basis of more detailed inputs or institutional units.
References
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Annex 6.A. Programme budgets for health
Annex Table 6.A.1. Programme budgets for health
Source: From an analysis of 2021/22 budgets for health expenditure.
Annex Table 6.A.2. Programme budgets for health
Source: From an analysis of 2021/22 budgets for health expenditure.
Annex Table 6.A.3. Programme budgets for health
Source: From an analysis of 2021/22 budgets for health expenditure.
Annex Table 6.A.4. Programme budgets for health
Source: From an analysis of 2021/22 budgets for health expenditure.
Annex 6.B. Programme and performance budgeting for health: Country case studies
Key findings
Chile has a long history of programme budgeting reforms. However, budget programmes are rarely specified in terms of related objectives of public spending. Instead, budget programmes typically correspond to the different institutions in the health sector.
Nevertheless, Chile has a robust evaluation system, providing an abundance of relevant performance information. This performance budgeting structure in Chile has contributed to an increase in public transparency and accountability, both in terms of demonstrating to the public the objectives and activities that each public institution pursues, and the main results or measures of progress in relation with those objections and actions.
Latvia has a well-developed programme budgeting structure in place for the health system. The budget contains varying programme types, reflecting the various roles of the Ministry of Health. Most programmes and sub-programmes are service‑based, organised around the level of care provided in the National Health System.
Latvia has a clear reporting framework in place for programmes and sub-programmes, outlining the aims and activities within the scope of the programme. While there is no direct relationship between performance and funding, the results can be used as a justification for increasing or decreasing funding during the budget formulation stage.
Health system reforms in 2022 in New Zealand led to a large restructuring of the programme budget structure. The new structure is predominantly organised around service‑based programmes for primary care, hospital and specialist services, and pharmaceuticals. An important new programme provides Māori health services and ensures that all health services are delivered in a way that promotes equity and is in line with the original treaty with Maori (The Treaty of Waitangi). New Zealand intends that the new programme structure will contribute to the rebalancing of the system away from hospital and specialist services towards primary and community care, prevention, and health promotion.
New Zealand has a clear and comprehensive performance framework, including a statement of what is intended to be achieved, and a performance assessment for each appropriation. This sets the expectations and directions for the health system and holds health entities accountable for result, within a wider accountability framework for whole‑of-government.
Programme Budgeting for Health in Chile
Overview of health financing arrangements and budget process for health
Chile has a dual health system, with both significant public and private health insurance schemes. Public healthcare is provided by the government via the National Health Fund (FONASA) covering around 78% of the population. The public system is financed mainly through general taxation plus a compulsory contribution from a 7% payroll tax, which is pooled and managed by FONASA. Private healthcare is delivered through the Institutions of Health Insurance (ISAPRE) covering 18% of the population. The following analysis covers the public health system in Chile.
The Ministry of Health has a stewardship role, responsible for formulating and setting health policies, and is supported by a network of public institutions (Annex Table 6.B.1). The delivery of healthcare services is relatively decentralised, with primary care services mainly provided by 345 municipalities. Hospital and specialist services are delivered by 29 Health Care Districts (HCD), which operate between the national and municipal level.
Annex Table 6.B.1. Institutions in the Chilean health sector
In recent years, Chile has put a particular emphasis on the health sector. Between 2015 and 2019, annual average per capita public expenditure on health grew by 3.9%, above the OECD average of 2.6% (Annex Figure 6.B.1). Despite this, in 2021, Chile spent 2 675 USD PPP per capita on health, just over half of the OECD average. Moreover, nearly third of all health expenditure in 2021 was financed through out-of-pocket payments by households compared to the OECD average of 18%.
Annex Figure 6.B.1. Average annual growth in per capita health expenditure (real terms), 2015‑19 and 2019‑22
1. Based on OECD estimates for 2022. Growth rates and time periods may have been adjusted to take account of breaks in series.
Source: OECD Health Statistics 2023, https://doi.org/10.1787/health-data-en.
Chile has a strong top-down budgetary process led by the Direction of Budgeting (DIPRES) of the Ministry of Finance. Each year, institutions in the health sector are responsible for preparing their budget for the coming year. The Ministry of Health co‑ordinates budget planning, execution, and monitoring across the institutions.
Programme budgeting in Chile dates to 1993, when DIPRES implemented a pilot of programme budgeting in five public institutions. From 2000, DIPRES designed a standard form for submitting requests for funding new programmes or increasing funding for existing programmes, to separate baseline and new expenditure. Alongside programme budgeting, in 1994, DIPRES launched a system of evaluation and performance information to improve resource allocation and performance in the public sector.
Programme budgeting structure for health
The national budget law in Chile is divided into portfolios (partidas), which correspond to Ministries and the Treasury. National health spending is under the Ministry of Health portfolio. Each portfolio is divided into chapters (capítulos), which are the different institutions in the health system. There are 39 chapters for the health sector. This includes the five institutions in the health sector (see Annex Table 6.B.1.), the 29 Health Care Districts, as well as an independent hospital and several health centres.
Each chapter is broken down into programmes (programas) (Annex Table 6.B.2). The programmes signalled in budget law have little flexibility and the resources must be used for the specific programme unless a special procedure can be agreed with DIPRES. Descriptions of programmes are not accompanied with any statement of expected outcomes or objectives of the resource allocation. Moreover, institutions are responsible for additional programmes not defined within budget law.
Annex Table 6.B.2. National budget law, Ministry of Health portfolio, 2023
Note: The programmes included in this table are the ones explicitly mentioned in the documents per each institution in the National Budget 2023 at the programme level.
Source: National Budget Law 2023, Chile.
Most of the budget under the health portfolio is allocated to the National Health Fund (FONASA) – the health insurer for the public health system. Programmes under FONASA are organised by the type of care to be delivered. Approximately 25% of the FONASA budget is allocated to the primary healthcare programme to finance the Family Health Plan delivered by municipalities (Annex Box 6.B.1).
Annex Box 6.B.1. Primary Healthcare programme
The Family Health Plan is an explicit benefits package designed by the central government. It provides most of the explicit guarantees for primary care. The primary healthcare programme under FONASA finances the delivery of the Family Health Plan by municipalities. In addition, municipalities finance a part of primary care themselves through their own revenues, which represented about 10% of the expenditures in 2019. Health districts operate between the national and municipal levels – overseeing the implementation of primary healthcare, approving municipal plans and organising staffing and resources within geographical areas (Cuadrado et al., 2022[21]).
Financing from the primary care programme is transferred to municipalities through a mix of mechanisms:
Around 65% of resources are transferred through a capitation system that allocates resources for each person assigned to a respective municipality catchment area in reference to the Family Health Plan. The per capita amount is adjusted according to the characteristics of the municipality’s population and geography, such as poverty, age structure, proportion of rural population, and areas classified as being difficult to work in.
Other resources are transferred to finance specific programmes (e.g. urgent care centres) or through specific primary healthcare laws (e.g. pay-for-performance). An important pay-for performance‑mechanism is the Primary Health Care Strengthening Programmes (PRAPS). The PRAPS is a payment to finance specific programmes that are not included in the Family Health Plan. Each programme is delivered through agreements between the Health Care districts and the corresponding municipality. The agreement stipulates the objectives of the programme that must be fulfilled along with deadlines and rules for the allocation. In 2022, PRARPS included programmes for rural emergency services, diagnostic imaging, and dental care.
The largest share of the FONASA budget (approximately 60%) is organised around two programmes for the financing of secondary and tertiary care. Two-thirds of financing is allocated to hospitals through Health Care Districts through the “Diagnostic Related Groups (DRG)” programme. The remainder is allocated through the “Programme of Institutional Benefits (PPI)”. Under the PPI, resources are allocated to Health Care Districts based on the historical evolution of expenditures, covering the fixed costs of operation and activities not covered under the DRG mechanism. In addition, the 2021 budget for FONASA contained a new programme, to fund the emergency COVID‑19 response (Annex Box 6.B.2).
Annex Box 6.B.2. The COVID‑19 Transitory Emergency Fund
Chile created the COVID‑19 Transitory Emergency Fund to address the economic effects of the pandemic and finance emergency measures in response to the COVID‑19 pandemic. The fund covered additional health expenditure, protected the income of families and workers, provided additional resources for municipalities, contributed to social organisations, and promoted economic recovery. The Minister of Finance was responsible for the administration of the Fund, supplementing the 2021 budget of the Ministry of Health by 268 billion Chilean pesos. This included 153 billion for costs related to the COVID‑19 vaccination campaign, and 115 billion associated with the costs of dealing with postponed care.
For other institutions beyond FONASA, budget programmes reflect the policy mandate of each institution and the interventions it must provide. Here, programmes are directed towards a specific population group or public health intervention. For example, budget programmes under the Under-Secretariat of Public Health (USPH) fund several interventions, including the national complementary food programme, the expanded programme of immunisations, the complementary food programme for the elderly, and the emerging diseases programme (which works on the preparedness and response to outbreaks). Similarly, the Under-Secretariat of Health Care Networks (USHCN) receives resources to manage programmes such as the new-born support programme.
However, much of the health budget does not correspond to traditional budget programmes – defined in terms of expenditures with related outputs of outcomes. Many of chapters, which correspond to the various institutions, contain just one programme for all expenditure with no corresponding statement of objectives (outcomes) or key services (outputs) for the programme. This is the case for the Institute of Public Health (IPH), National Agency of Procurement for the Health Services (CENABAST), Superintendence of Health (SIH), and the 29 Health Care Districts. Therefore, these programmes correspond to organisational criteria, rather than to the objectives of public spending. In addition, the programmes of many of the institutions include large amounts of money which represent transfers that are paid by the institution to other institutions to commission services. This blurs the transparency of the allocations of resources to policy objectives.
Use of budget restrictions within programmes
The budget law in Chile is very detailed compared to other OECD countries (Vammalle and Ruiz Rivadeneira, 2017[22]). Within programmes, expenditure is classified along the following broad economic categories which restricts the use of expenditure:
Personnel expenditure
Purchase of goods and services
Current transfers: all contributions or subsidies, without consideration of goods or services, which are not included in the operational expenditures.
Purchases of non-financial assets (subdivided into vehicles, machines and equipment, computer equipment and software)
Capital transfers
Debt service and liquidity
In addition to the above‑mentioned restrictions, Chile’s budget law has an important number of annotations (glosas). These are restrictions for specific appropriations, or earmark part of a larger appropriation for specific projects. For example, the programme for the Institute of Public Health (IPH) in 2023 included six annotations, including restrictions on the maximum number of staff within the institution, overtime per year, and authorisations for per diem expenses.
Performance frameworks within programme‑based budgets
Chile has a robust evaluation and control system, providing an abundance of performance information. In 2000, DIPRES created a “System of Evaluation and Management Control” that delivers information about the performance of public institutions. It disseminates performance information to contribute to greater transparency through the publication of documents that show methodological aspects and/or improvements under the system (DIPRES, 2018[23]). The system consists of different instruments, including the monitoring and follow up of performance indicators, programme evaluations, and wage incentives mechanisms. In relation to the health sector, the key instruments are the following:
The Management Improvement Programme (PMG) is a reward system for central government employees in which bonuses are determined by organisational performance. It aims at improving management processes within agencies, against a pre‑established benchmark. For the health sector, this includes central government employees of FONASA, National Agency of Procurement for the Health Services (CENABAST), Superintendence of Health (SIH), Institute of Public Health (IPH), Under-Secretariat of Health Care Networks (USHCN), and the Under-Secretariat of Public Health (USPH). Indicators are grouped into those that measure effective management, institutional efficiency, or quality of service. Examples of indicators include measures of the use of electronic systems, workplace accident rates, gender equity measures, measures of efficient procurement, and number of complaints. The monetary incentive corresponds to 7.6% of the remunerations if the institution reached a degree of compliance equal to or greater than 90% of the committed annual objectives, and of 3.8% if compliance was equal or greater to 75%.
The Medical Law sets a bonus payments related to collective performance for around 12 000 workers in the health sector. Under the law, the Ministry of Health, in conjunction with the Ministry of Finance, defines a set of priority areas, objectives, and indicators with related targets for the 29 Health Care Districts. In March of each year, an evaluation of compliance to the indicators is carried out. Based on the evaluation and the available budget, directors of each Health Care District set pay bonuses to professionals within their network, up to a maximum of 10% of their total annual salary.
DIPRES requests performance indicators through a single standard format (form H) associated with the delivery of products (goods or services) by public institutions. In the health sector, indicators measure performance across seven institutions, including FONASA, the Institute of Public Health (IPH), and Under-Secretariat of Health Care Networks (USHCN), and the National Agency of Procurement for the Health Services (CENABAST). Indicators are classified into either process, intermediate results, or output indicators that cover quality, efficiency, or economic dimensions. In 2023, there were 32 indicators across the seven health institutions.
Chile also has a system of ex ante and ex post evaluations developed by DIPRES. Ex ante analysis of new spending programmes follows a well-developed methodology, involving co‑operation between DIPRES, the Ministry of Social Development, and the Ministry of Health. The main objective of this type of assessment is to improve the quality of spending through systematic analysis of programme design, including the use of logical frameworks and indicators to create a strong basis for programme monitoring and evaluation. Ex-post evaluation considers programme design, processes, resource use, short and medium-term results, and whether programmes have achieved their intended outcomes. Evaluations are mainly used to modify programme design and management, rather than for budget allocation purposes. (Beazley and Ruiz Rivadeneira, 2021[24]). In 2022, Chile carried 11 ex ante programme evaluations, and 1 ex post programme evaluation for the health sector, both for programmes specified in budget law and for programmes not in the budget law.
Chile credits the performance budgeting system in realising several benefits. The performance budgeting initiatives have enhanced the collaboration between Ministry of Finance and Ministry of Health Officials, creating bridges for dialogue and project building among them. The performance budgeting structure in Chile has also contributed to improving public transparency and accountability, both in terms of showing the objectives and activities that each public institution pursues, and to release the main results or measures of progress in relation with those aims and actions.
While Chile has a long history of using budget programmes and performance indicators, some issues could still be improved. Although there is an abundance of performance information, the performance framework does not directly relate to programmes as specified in budget law. Instead, performance information focuses on performance management of the various institutions in the health sector, and wage‑based incentive mechanisms for public-sector workers. Most programmes that undergo evaluation to not correspond to the programmes specified on budget law, undermining the value of evaluations as an instrument for supporting allocative choices. There has been an increase in the number of indicators collected for managerial and budgetary purposes, which overburdens the system and creates somewhat excessive bureaucracy. In addition, many of these schemes remained to be formally evaluated. This would provide relevant information to improve the system and, ultimately, enhance the value gained from their use.
Programme budgeting for Health in Latvia
Overview of health financing arrangements and budget process for health
Latvia has a National Health Service, financed primarily from general tax revenues. The Ministry of Health has overall responsibility for developing national health policy and manages the overall organisation and functioning of the National Health System (NHS). The NHS acts a single purchaser of care services from national and local providers and is responsible for implementing policies developed by the Ministry of Health.
The health sector in Latvia is relatively under-resourced in comparison to OECD countries, with Latvia spending 3 445 USD PPP on health in 2022, compared to the OECD of 4 986 (Annex Figure 6.B.2). Public funding sources accounted for 69% of health expenditure in 2021, while nearly 30% of health expenditure was financed through out-of-pocket payments by households, considerably above the OECD average of 18%.
Annex Figure 6.B.2. Health expenditure per capita, 2022 (or nearest year)
1. OECD estimates for 2021.
Source: OECD Health Statistics 2023, https://doi.org/10.1787/health-data-en.
The responsibility for setting the budget for health in Latvia lies with the Ministry of Finance, the Ministry of Health, and the Cabinet of Ministers. The Ministry of Finance is responsible for gathering budget requests for submission and approval by the Cabinet of Ministers. The budget for the health sector is under the Ministry of Health, with the majority allocated to the National Health Service through programmes and sub-programmes. The national budget is the primary source of funds for the NHS. Other sources of financing include co-payments, EU funds, local government budgets, and the own revenue of state and municipal medical institutions.
In 2006, the Cabinet of Ministers in Latvia approved a new programme‑based budget format with a three‑year perspective.
Programme budgeting structure for health
For the Ministry of Health, budget appropriations concentrate on four policy targets. Most expenditure allocations fall under the “Healthcare” target (83.1% of the health budget in 2022). Under this target, appropriations cover the provision of core health services, including primary, secondary, and emergency care. The other policy targets include Public Health, Pharmacy and Sector Management and Policy Planning (Annex Figure 6.B.3). The policy targets represent the different roles of the Ministry of Health, and therefore their direction is stable over political changes and objectives.
Annex Figure 6.B.3. Policy targets for the Ministry of Health
Source: Budget 2022, Ministry of Finance of the Republic of Latvia.
Within each policy target, expenditure allocations are categorised into programmes and sub-programmes (Annex Table 6.B.3). Latvia defines programmes as ‘mutually connected measures or services that are oriented to a common objective, and that are planned, implemented, recorded and controlled by bodies financed from the budget’.
The budget of the Ministry of Health contains 34 sub-programmes, grouped in 13 programmes. Each sub-programme is the responsibility of a unique executor, and to a lesser extent, multiple sub-programme executors, in which case a separate financing plan is created for each executor. The details of sub-programmes are contained within the Annex of the Draft Annual State Budget Law submitted to the Cabinet of Ministers.
There is close alignment between the sub-programme structure and the existing organisational structure of the health system. The NHS is the executor for most sub-programmes of the budget of the Ministry of Health. If the NHS wishes to reallocate between spending programmes or sub-programmes, it must submit proposals, including detailed calculations and explanations, to the Ministry of Health for evaluation. In addition, the proposal must also be approved by the Ministry of Finance or by the Cabinet of Ministers. Other agencies responsible for programmes include the Centre for Disease Prevention and Control, the National Centre of Forensic Medicine Expertise, the Health Inspection, the State Blood Donor centre, the Emergency medical Service, the Latvian Anti-Doping Bureau, and the Pauls Stradiņš Medicine History Museum.
Annex Table 6.B.3. Budget of the Ministry of Health
Note: Excludes programmes associated with European Union projects.
Source: Budget 2022, Ministry of Finance of the Republic of Latvia.
The arrangement of programmes and sub-programmes across the budget of the Ministry of Health do not follow a consistent typology across the whole budget. This is a common trend across OECD countries.
Many sub-programmes are for direct service delivery and are organised by the type of service provided. Examples consists of “provision of primary outpatient healthcare”, and “provision of emergency medical care in inpatient facilities”. Expenditure baseline calculations derive from the established objectives and the associated resources expected to meet those objectives, calculated from a set of output indicators. However, regulations issued by the Cabinet of Ministers state that a minimum 45% of the healthcare budget is allocated to outpatient care, and a maximum of 53% to inpatient healthcare.
Other budget programmes resemble economic activities, rather than specifying the objectives of budget resources. For example, “Payments to international organisations” are transfer payments to ensure participation within various international health and pharmaceutical networks in accordance with international agreements”.
As is common across health budgets in OECD countries, the aggregation of programmes and sub-programmes aims to group expenditure that works towards achieving a common health objective. For example, the sub-programme “health promotion” is not associated with the provision of a single level of care, but the overall implementation of policies to achieve better public health. For such policy-based programmes, there is greater necessity for a link between resources and intended objectives, and for accountability mechanisms to be in place.
Latvia also uses several administrative or support programmes. Such programmes contain activities that are not for the provision of health services, but rather for activities that support a well-functioning health system. Separating such costs avoids the burden of allocating across programmes. The programme “administrative and economic evaluation of healthcare funding” for example contains expenditure for health service planning and managing e‑health projects.
Lastly, the programme budgeting structure incorporates a programme to ensure the implementation of unforeseen measures, titled “funds for unforeseen events”. Funds are allocated to the programme for the prevention of disasters, and the compensation of losses caused by them. The response to the COVID‑19 pandemic was included in this programme (Annex Box 6.B.3). Other uses of the programme include for the delivery of public sector services in case of non-fulfilment of existing contractual agreements with third parties, and other foreseen events of special national importance.
Annex Box 6.B.3. Financing the COVID‑19 health sector response in Latvia
Measures related to the COVID‑19 pandemic were primarily financed from the state and local government budgets. Upon the request from line ministries, the Cabinet of Ministers took decisions on measures for the prevention and management of COVID‑19, as well as on the allocation of funding from the state budget programme “Funds for Unforeseen Events”. The inclusion of a budget programme for contingency funds allowed for the rapid distribution of funds for response measures during the COVID‑19 pandemic.
Up until January 2022, EUR 533 million was allocated to the Ministry of Health from the budget programme “Funds for Unforeseen Events” to finance response measures to COVID‑19. This included:
EUR 83 million to develop COVID‑19 testing
EUR 23.5 million for the purchase of medical equipment and supplies
EUR 27.9 million for allowances for observation beds and intensive care beds
EUR 63.3 million for outpatient and inpatient healthcare services, and for laboratory examinations
EUR 54 million for the purchase, logistics and administration of COVID‑19 vaccines
EUR 155.4 million for bonuses and overtime for medical practitioners and other employees for work in high-risk and stressful situations in a situation of danger to public health in connection with the prevention of COVID‑19 outbreaks and consequences.
Source: Government of Latvia (2021[25]), Distribution and use of allocated funds, https://covid19.gov.lv/atbalsts-sabiedribai/ekonomika/finansu-ieguldijums-krizes-parvaresanai/pieskirto-lidzeklu.
The programme budgeting structure in Latvia has developed over time, with a notable change occurring in 2017, when the “healthcare” programme was divided into smaller sub-programmes (Annex Figure 6.B.4) based on the type of healthcare service provided. This has improved the traceability and transparency of health expenditures.
Annex Figure 6.B.4. Change to the Ministry of Health programme structure 2017
Source: Ministry of Finance of the Republic of Latvia.
The programme budget structure includes spending controls
A fundamental benefit of programme budgeting is to increase flexibility for managers on the choice of inputs. Allowing managers to make spending decisions, rather than facing restrictions by detailed line‑item controls should bring about efficiency in public spending.
However, as with other OECD countries that have moved towards programme budgeting, Latvia still maintains some expenditure controls. This helps mitigate the risk incurred by the Ministry of Finance by allowing programme managers more flexibility in the management of budget resources. The total expenditure for the Ministry of Health, along with programmes and sub-programmes, is broken down further by economic classification (Annex Table 6.B.4).
During the execution stage of the budget, reallocations between large economic categories, such as remuneration, goods and services, and capital expenditure require approval from the Ministry of Finance, the Cabinet of Ministers, or Parliament Budget committee. However, no permission is required for reallocating expenditure within lower economic categories.
Annex Table 6.B.4. Economic classification of expenditure groups
Source: Ministry of Finance of the Republic of Latvia.
The economic classification system for expenditure is used in planning, execution, and financial reporting of the budget. It also allows for analytical and statistical analysis of expenditure to provide the Ministry of Finance with informative data. During the financial year, if there are justified differences between the actual and planned expenditure, these can be corrected by a reallocation, increase, or decrease to programmes. This changes the lines approved in the annual budget but without amending the annual budget law.
Performance frameworks within programme‑based budgets
Latvia has a national performance framework covering the publicly funded health budget. Along the change in budget structure towards programmes, the Cabinet of Ministers also committed to increasing the use of performance information within the budget. Performance information is integrated at multiple hierarchies, including policy targets and sub-programmes. Performance information is contained within the explanations to the budget bill discussed by the Cabinet of Ministers each year.
For each policy target, performance metrics are included in the form of a “Policy and Resource Management Scorecard” (Annex Table 6.B.5). The scorecards are the core framework for linking expenditure and other inputs with policy goals and results scrutiny by Parliamentary and budgetary analysis. Each policy target is associated with a performance target and performance indicators across four categories: policy, input, performance, and quality indicators. Updating of the indicators for specific policy targets takes place on a regular basis in response to political objectives.
Annex Table 6.B.5. Policy and Resource Management Scorecard
Source: Budget 2021, Ministry Finance of the Republic of Latvia.
Policy targets as defined on budget documents are closely linked to the general national government strategic plans, as well as with detailed strategic plans of the Ministry of Health. Policy targets align with the National Development Plan (NDP) of Latvia for 2021‑27. The National Development Plan is the national-level medium term planning document for Latvia, setting medium-term priorities, and outlining the areas of action, objectives, and indicators for implementation. The policy target “Pharmacy” is associated with the Public Health Policy Guidelines 2014‑20. The guidelines also help planning the medium-term public health policy and align with the National Development Plan. This ensures that policy decisions centre on the key issues within Latvia, in particular death from non-communicable diseases, which is the leading cause of avoidable death in Latvia.
The use of performance information extends to the sub-programme level (Annex Table 6.B.6). The framework outlines the purpose of the sub-programme, along with the main activities and the sub-programme executor. Each sub-programme is linked to performance indicators which detail the annual plan and 2‑year future forecasts. Latvia mainly uses output indicators, with an average of four indicators per sub-programme.
Annex Table 6.B.6. Example of performance reporting for sub-programmes
Source: Budget 2021, Ministry Finance of the Republic of Latvia.
Despite this effort to create a rounded performance system, some indicators lack relevance to the policy objective, and are only partially attributable to the actions carried by the programmes and sub-programmes. For example, it is difficult to measure the success of the policy target ‘Pharmacy’ from an indicator of years of potential life lost, as it can be attributable to many government activities and external determinants. Moreover, the repetition of policy performance indicators, such as years of potential life lost and average life expectancy of new-borns, across multiple policy targets emphasises the lack of ability to measure the success of each policy target using broad outcome measures.
The results of performance scorecards influence spending allocations for the following budget year. While there is no direct relationship between funding and results, each year, the results of the performance scorecards for policy targets and sub-programmes are analysed. In the case of unfulfilled performance objectives, assessment takes place to determine the causes. While there is no direct relationship between results and funding, the results can be used as a justification for increasing or decreasing funding during the budget formulation stage.
Programme budgeting for Health in New Zealand
Overview of health financing arrangements and budget process for health
New Zealand has a national health system predominately financed through general taxation. Until 2022, 20 District Health Boards (DHBs) were responsible for managing and providing healthcare services to the population in each district. A 2018 review of the health system, however, concluded that over time, the setup of many distinct local bodies made the health system too fragmented and complex. As a result, in 2022, New Zealand disestablished the 20 DHBs and merged their functions into a new organisation Te Whatu Ora – Health New Zealand.
Te Whatu Ora manages all health services in New Zealand, including hospital and specialist services, and primary and community care. Hospital and specialist services are planned nationally, while primary health, well-being and community-based services are planned and purchased through four new regional divisions of Te Whatu Ora. The Ministry of Health will continue its role as strategic advisor and steward of the health system. A new, statutory entity, Te Aka Whai Ora – Māori Health Authority, in partnership with the Ministry of Health and Te Whatu Ora, is responsible for ensuring the health system works well for the Māori population.
Health expenditure is a major item in the budget of the New Zealand Government, accounting for around a fifth of total government expenditure. New Zealand spent 11.2% of its GDP on health in 2021, above the OECD average of 9.2% (Annex Figure 6.B.5).
Annex Figure 6.B.5. Health expenditure as share of GDP, 2021 (or nearest year)
1. OECD estimates for 2021.
Source: OECD Health Statistics 2023, https://doi.org/10.1787/health-data-en.
Each budget cycle, the Ministry of Health submits the budget for the health sector, known as the “Vote Health”. The Ministry of Health is responsible for administering Vote Health, the primary source of funding for New Zealand’s health service. New Zealand was one of the first countries to implement programme budgeting reforms, with the transition to ‘output-based’ appropriations in the late 1980s.
Programme budgeting structure for health
Recent reforms to the health system organisation in New Zealand have led to a restructuring of the output-based budget. Prior to the health system reform in 2022, Vote Health was organised around 54 ‘programmes’, which included 20 appropriations for each one of the District Health Boards, and several appropriations for services nationally commissioned by the Ministry of Health. This mix of geographic and service‑focused appropriations did not provide sufficient transparency to Parliament about how the Ministry of Health intended to use public money, created barriers for the integration of care, and caused an administrative burden to reallocate funding (Department of the Prime Minister and Cabinet, New Zealand, 2022[10])
From 2022, the Vote Health appropriation structure has shifted to a smaller but more consistent set of programmes to support a more meaningful authorisation by Parliament. The shift in the number of programmes mirrors the change to the health system from fragmented District Health Boards to a more centralised national health system.
As of 2022, Vote Health is organised into 20 programmes (Annex Table 6.B.7) that fit into one of the seven types of appropriations, as outlined by the Public Finance Act 1989. Individual appropriations are defined by their scope that establishes the legal boundary for what the appropriation can be used for.
The most common type of appropriation is output expenses. These group together goods and services of similar nature. Output expenses can be departmental (supplied by the Ministry of Health) or non-departmental (output produced by a supplier other than the Ministry of Health).
Most output expenses are organised around the type of health service to be delivered. Approximately half of the Vote is allocated to hospital and specialist services. A third of the Vote is allocated to the programme to deliver primary, community, public and population health services. Other output expenditures include the “delivering hauora Māori services” programme, financing the Māori Health Authority to deliver Māori services and support the development of Māori providers. A separate programme contains pharmaceutical expenditure. The implications of separate programmes for different health services were carefully considered during the health system reform (Annex Box 6.B.4).
Capital expenditure is contained within separate programme types and is also categorised into departmental and non-departmental. Departmental capital expenditure consists of the capital expenditure of the Ministry of Health. Non-departmental appropriations authorise capital expenditure on behalf of the government. This includes appropriations for the Health Capital Envelope, a multi-year funding envelope for new debt from which capital requirements in the health sector must be financed.
Annex Table 6.B.7. Titles of Appropriations for Vote Health programmes
Source: Vote Health Estimates 2023/24, Government of New Zealand.
A multi-category appropriation covers the Ministry of Health’s functions, including monitoring and advisory, and stewardship. Multi-category appropriations are used to provide financial flexibility across different categories of expenditure that contribute to a single overarching purpose, while preserving transparency about what is achieved. The appropriation stewardship finances activities including health research, policy advice, public health leadership, regulation and enforcements, and sector performance and monitoring. From 2021, the budget also contains new multi-category programmes dedicated to the national response to COVID‑19 across the health sector and implementing the COVID‑19 vaccination strategy.
Programmes classified as other expenses are a residual type of expense appropriation that cover expenditure that is not readily classified as one of the other appropriation types. This includes a programme for financing international health organisations, and the settlement of health sector legal claims.
Annex Box 6.B.4. Designing the new programme budget structure
A key motivation of the 2022 reform of the New Zealand health system was to balance the system away from hospital and specialist services towards primary and community care, prevention, and health promotion. In addition, the centralisation away from a high number of local bodies aims to address the opacity around financial performance and outcomes achieved at the local level.
The new programme structure is designed to support these objectives through:
A narrowly defined programme for hospital and specialist services and a separate programme primary, community, public and population health. This adds control for any transfers of funding between these programmes. Under the previous organisation set-up, District Health Boards had single appropriation for both hospital and primary care. While creating separate programmes for hospital and primary may hinder service integration, New Zealand views that hospital and specialist care continuing to dominate over public health, primary and community care a greater risk. The new planning document – The New Zealand Health Plan – will provide guidance on collaboration between hospital and specialist care, as well as primary and community care.
A separate programme for the new Māori Health Authority (MHA) enforces financial accountability and reporting responsibilities with the role of the MHA in the new system, and providing greater transparency to Parliament and public.
A separate programme for pharmaceuticals under the responsibility of Pharmac – the New Zealand entity responsible for decisions on which medicines and pharmaceutical products are subsidised for public use. This aligns funding and reporting responsibilities with accountability for managing the pharmaceutical budget. This in turn aims to improve transparency and support a more optimal use of the budget, in particular for high-cost medicines. While a separate pharmaceutical programme risks creating a barrier in substituting pharmaceutical and non-pharmaceutical treatments in the face of new emerging evidence, New Zealand intends to overcome this barrier through joint oversight and planning arrangements for the health sector.
Source: Department of the Prime Minister and Cabinet, New Zealand (2022[10]), Health and Disability System Reform – national budget and funding.
Performance frameworks within programme‑based budgets
Performance monitoring framework
The new budget structure in New Zealand is combined with accountability measures to support health sector planning and financial control. Mechanisms include expectation setting, planning, and reporting (Annex Figure 6.B.6).
Annex Figure 6.B.6. Overview of accountability mechanisms
Source: Department of the Prime Minister and Cabinet, New Zealand (2022[10]), Health and Disability System Reform – national budget and funding.
As part of expectation setting, performance information is integrated into the presentation of each appropriation approved by Parliament within budget documents (known as Estimates). Programmes are supplemented by a description of the scope of the appropriation, what should be achieved, and an explanation of how performance will be assessed and reported. Annex Table 6.B.8 shows an example of the performance assessment framework for the programme “delivering hospital and specialist services”.
Annex Table 6.B.8. Performance assessment framework
Source: Vote Health Estimates 2023/24, Government of New Zealand.
The ‘standard’ refers to the intended level of performance within a stated timeframe and therefore acts as a target. Indicators are specific to each appropriation, usually in the form of output indicators. Other indicators often included are activity indicators, with actions that are intended to be achieved with the appropriation. Over 200 indicators were included in the Vote Health document for 2023/24. As with other OECD countries with experience in performance budgeting, over the last five years the trend has been towards a decrease in the number of performance indicators used, as to reduce the administrative burden.
New Zealand identifies as having a performance‑informed approach to performance budgeting, where performance information plays a role in spending decisions. However, this is in an indirect way, and there is no automatic link between resource allocations and performance. In the New Zealand budget system, performance indicators are closely linked to national outcome goals and government policy priorities. The Treasury, which is responsible for the budget process, sets quality standards for the selection and approval of performance indicators (OECD, 2018[2])..
The Well-being Budget
In 2019 the government delivered its first Well-being Budget (Annex Box 6.B.5), to help understand the impact of budget initiatives on the living standards of New Zealanders. The Living Standards Framework helps to analyse and measure the policy impact on inter-generational well-being of New Zealanders.
This affected the health sector in two ways:
As health is one of the domains incorporated in the Living Standards Framework, health outcomes are considered by a wider range of government departments beyond the Ministry of Health. For example, the government investment in mental health was not concentrated only on the health sector but includes initiatives in the justice and education system as well (Bloomfield, 2019[26]).
The adoption of the Well-being budget led to a substantial investment in mental health, as this was one of the five priorities of the 2019 budget.
Annex Box 6.B.5. New Zealand’s well-being budget
The aim of the well-being budget is to look beyond normal fiscal and economic data as measures of success, by including measures of well-being. The idea is to deliver a budget that comments on the current well-being status of New Zealanders, as well as the impact of policy decisions for future well-being (Annex Figure 6.B.7).
Annex Figure 6.B.7. Well-being Budget Process
Source: The New Zealand Treasury (2019[27]), The Well-being Budget, https://www.treasury.govt.nz/sites/default/files/2019-05/b19-wellbeing-budget.pdf.
Some key changes to the budget process have occurred because of the Well-being budget:
The Living Standards Framework, developed by the New Zealand Treasury, provides a wider approach for developing the budget strategy. The framework helps to analyse and measure the policy impact on inter-generational well-being of New Zealanders. The framework includes 12 domains of well-being outcomes, four capital stocks that support well-being now and, in the future, (natural capital, human capital, social capital and financial and physical capital), and elements of risk and resilience. Data from the Living Standards Framework is used to select the Well-being Budget priorities that would make the most difference to the well-being of New Zealanders.
Secondly, the approach requires a well-being analysis of each bid for funding to make sure that funding would address these priorities. Agencies must identify expected impacts of the initiative across the Living Standards Framework domains and capitals. The approach also aims to break down agency silos and encourage cross-government policies for improving well-being.
Source: The New Zealand Treasury (2019[27]), The Well-being Budget, https://www.treasury.govt.nz/sites/default/files/2019-05/b19-wellbeing-budget.pdf.
Note
← 1. Note that programme implementation may ultimately lie with a large number of administrative units (hospitals, primary care facilities etc.), but this section refers to the allocation of programmes on budget appropriations.