1. Fiscal Decentralization, Budget
Norms and Equalization Norms in
the Health Sector:
From Simplified Interim Formula
to Final Complex Formula
Jean-Marc Lepain
Public Finance Specialist
Intergovernmental Fiscal Advisor, Ministry of Finance
jlepain@yahoo.fr
Tel: 020.776.16.934.
Manilay Thipalansy
Research Consultant July 2010

2. Consensus about Budget Norm
Formulae
• Must be facility-based
• Should be disaggregated by facility types
• Should take into consideration size of the
attached population
• Should take into consideration the capacity to
raise user fees and technical revenue
• Should pay for basic operation needs
• Should be based on a clear expenditure
assignment

3. Three Types of Norms
• Norms for central budget
• Norms for provincial budget
• Norms for health facility type (central and
provincial)

4. Non-Wage Fiscal Envelope
The non-wage fiscal envelope will be calculated
as a percentage of the recurrent budget with
the objective of raising the ration from 16.8%
in FY2009/10 to 26%-28% in FY2011/12 in all
provinces.

5. BUDEGET NORM ARCHITECTURE
Provincial Health Budget (F)
Provincial Hospital Prov.
District Health Budget
(F) Admin.
District Hospital District Hospital
Type A (F) Type B (F)
H.C. (F) H.C. (F) H.C. (F) H.C. (F)
(F) = formula

6. Possible Final Budget Norm Structure
+ Allocation on the basis of medical staff 70%-80%)
+ Allocation on the basis of population (20%)
+ Adjustment for poverty level and other cost
factors (0%-10%)
= Total Health Provincial Allocation

7. Medical Staff
• Best proxy for facility type and size
• Can use different categories of medical staff:
-specialists (Hospital type A)
-general practitioners
-other technical staff
-nurses (Health Centers)
The exact number of categories and their
definition remain to be defined.

8. Issues with Medical Staff
• Doctors can work in different facilities;
• Central data do not track staff by district or
health facilities
• Definition of staff categories is based on
salaries, not on performed duty

9. Issue with the poverty factor
• Poverty does not explain inequality in past
allocation;
• Poverty is only an indirect indicator of the
capacity to raise user fees
• Poverty is better measured at the district
level, not at the provincial level

10. Spending per Capita and Poverty
Population Poverty Spending
Provinces Level per
Capita
Vientiane Capital 761,077 1 2,464
Xayabury 370,145 1 4,823
Xiengkhuang 264,073 1 6,324
Vientiane Pro. 463,502 1 6,017
Bolikhamsay 252,220 1 8,896
Champasak 656,142 1 3,841
Oudomxai 292,491 2 3,315
Bokeo 160,789 2 3,905
Luangphrabang 443,910 2 7,468
Khammouane 369,830 2 4,652
Savannakhet 900,288 2 1,308
Phongsaly 178,531 3 8,517
Luangnamtha 160,294 3 2,705
Houaphan 309,797 3 2,875
Saravanh 357,585 3 9,193
Xekong 94,418 3 1,794
Attapeu 123,840 3 4,926

11. Imbalance Ratio by Poverty Level
Average allocation in kip by poverty level
ALLOCATION IMBALANCE FY2009/10
Average Povert level 1 3237
Imbalance Ratio 2.3
Average Povert level 2 4836
Imbalance Ratio 5.7
Verage Poverty level 3 4416
Imbalance Ratio 5.1

12. Way Forward
• To implement a simplified interim formula
until systems are in place, issues are solved
and data are collected.
• To improve MOH’s statistic system
• To analyze hospital cost structure
• To analyze hospital capacity to collect user
fees and technical revenues
• To clarify the expenditure assignment

13. Simplified Interim Formula
• By a fix amount per health facilities
• By a fix amount per health facilities plus population
• By a fix amount per staff plus population
• By a fix amount per staff plus population with a
poverty level adjustment

14. Why a simplified interim formula?
• Impossibility to measure the need of the
provinces due to the lack of data
• Lack of program structure
• Lack of data on hospital spending
• Unclear expenditure assignment
• Unclear user fee and technical revenue policy

15. Pros and Cons
By fix amount per health facility By fix amount per staff
•Formula is simple •The formula is slightly more
•No risk of ambiguity complex but is intuitive
•Can easily solve all equalization issues •It will make easier the transition
toward a more complex formula
•Can easily solve all equalization
issues
•Fix amount is not representative of
the size of the facility and lead to
high imbalance in fund allocation
•Staff categories can be unclear
•The scheme is politically risky and
or too aggregated to be
difficult to justify in the eyes of the
representative of needs
provincial authorities.
•Can consolidate staff
•Not fair for province with large
misallocation
population (Vientiane Cap. Receive
less)
•No easy transition toward a more
complex formula.

16. Choice of formulae should not be based
on their respective merits but on a
careful analysis of who are the winners
and who are the losers

17. Fix Amount per Facility (formula 1)
A = fix amount for each provincial hospital (Ex: 1000M kip)
B = fix amount per district hospitals (Ex: 100 M kip)
b = number of district hospitals
C = fix amount per health centres
c = number of health centres (Ex: 19 M kip)
PHA = A + (B x b) + (C x c)
Non-Wage / Recurrent = 26%
Total non-wage budgets: 44.037 M kip
Budget increase: 19,490 M kip

18. Fix amount per facility plus
Population (formula 2)
• Fix amount per facility = 80%
• Fix amount per capita = 20%
Calculated on the basis of the fiscal envelope
plus equalization needs.
PHA = A + (B x b) + (C x c) + (D x d)
Non-Wage / Recurrent = 26,7%
Total non-wage budgets: 44.841 M kip
Budget increase: 19,998 M kip

19. Fix Amount per Medical Staff and
Population (Formula 3)
• A = fix amount per capita
• Popn = total population of the province
• S = fix amount per technical staff
• s = number of technical staff
PHA = (A x Popn) + (S x s)
Non-Wage / Recurrent = 26.1%
Total non-wage budgets: 43.305 M kip
Budget increase: 18,461 M kip

20. Issue with Formula 3
Based on the projection for FY2010/11, Bokeo
Province would receive less that its previous
budget
Options:
• To let the province go above the budget using
its budgetary resources;
• To use a special grant after reviewing reasons
for overspending
• To change the formula (see formula 4)

21. Fix Amount per Medical Staff Plus
Population and Poverty Incidence
(Formula 4)
Provinces are divided in two levels of poverty
with different values for S according to that
level
Non-Wage / Recurrent = 27.4%
Total non-wage budgets: 46.428 M kip
Budget increase: 21,584 M kip

22. Imbalance by Poverty Level
ALLOCATION IMBALANCE FY2009/10
Average Povert level 1 3237
Imbalance Ratio 2.3
Average Povert level 2 4836
Imbalance Ratio 5.7
Verage Poverty level 3 4416
Imbalance Ratio 5.1

23. Formulae Comparison
Scenario 1: Fix amount per facility
Scenario 2: Fix amount per facility plus population
Scenario 3 : Fix amount per medical staff plus population
Scenario 4: Fix amount pre medical staff + population + poverty
FY2009/10 Sc. 1 Sc. 2 Sc. 3 Sc. 4
non-wage / recurrent 16.8% 26.4% 26.7% 26.1% 27.4%
Total non-wage budget in M kip 24,844 44,037 44,841 43,305 46,428
non-wage expenditure increase n.s. 77.3% 80.5% 74.31 86.9%
Imbalance ratio 7.0 3.5 2.7 1.7 2.1
Non-wage per capita in kip 4,034 7,297 7,430 7,175 7,693

24. THANKS