There is a growing consensus among health financing specialists that low- and middle-income countries (LMICs) should ensure that government-owned health facilities receive some public funding directly and have the flexibility to spend it. The term direct facility financing (DFF) has come to be associated with such reforms that have drawn support from the Lancet Global Health Commission on financing primary health care and garnered attention from both donors and country governments.
Even as the DFF conversation gains momentum, it is critical that lessons from performance-based financing (PBF) reforms that were tested widely in many LMICs are not lost. At a conceptual level, PBF and DFF share many common attributes, and the use of different labels can be confusing. The translation of these concepts into actual practice has been different, however. And the discourse around PBF projects offers a vital lesson for DFF reforms: the importance of a systems approach.
The history of facility financing arrangements
Historically, LMIC governments used input-based budgeting to pay for health care at public facilities. Over time, stagnating health budgets, low execution rates, and leakage resulted in few funds reaching frontline facilities. Encouraged by international agencies in the 1980s, many LMICs introduced user charges and payments for drugs along with changes enabling facility managers to use these funds. While the fees gave facilities some flexible financing, they became a financial barrier to access for the poor. This set the stage for facility financing mechanisms geared towards removing user fees while maintaining their productivity incentives and the facility management autonomy that accompanied them.
The most popular were reforms bearing the PBF label. Rwanda was the first among LMICs to adopt PBF country wide. Successful advocacy and donor funding resulted in the approach spreading to 36 LMICs. Reforms bearing the DFF name were less numerous. Kenya and Papua New Guinea were among the early adopters of DFF, and a few countries including Nigeria, Cameroon, and Zambia introduced a package of interventions labelled DFF as a “policy counterfactual” to PBF. In recent years, DFF has come to be closely associated with Tanzania, which scaled up DFF nationally.
PBF and DFF share many characteristics. They both involve public funds flowing to facilities to cover some operating costs, even as the government directly pays for the bulk of core costs, such as staff salaries. Both are complex reforms that include other interventions like increased facility autonomy and community engagement.
As noted above, several countries tested PBF and DFF side by side. The key difference was that payments under PBF were linked to performance measured using output and quality indicators and in many cases facilities could use some of it to pay bonuses to staff. Studies found that they delivered comparable improvements, but DFF costed less and was easier to implement. The two approaches are not dichotomous, however; DFF with its emphasis on funds flows and operational autonomy can be foundational, while performance incentives à la PBF could be worked into the payments eventually.
An important practical difference
More has been written about PBF, and a key part of the discourse has focused on how PBF reforms have been implemented. Its proponents characterized PBF as a system-wide reform. Its critics feel PBF reforms have been “donor-driven fads” implemented in “project mode” and have fallen short of this promise.
For example, PBF schemes relied on new structures to verify results instead of strengthening existing information systems, and the payments were not aligned with public financial management (PFM) rules. Many PBF pilots were narrow, focusing on select services based on the donor funding them. These characteristics increased costs and hurt government buy-in, making the schemes unsustainable.
The way forward with facility financing reforms
A recent brief by the World Health Organization and the World Bank recommends that DFF be viewed as a systems reform instead of a new project or scheme. We agree but worry that old habits die hard. So, as the wind gathers behind the DFF sail, we offer three concrete recommendations:
- DFF can take many forms. The point is not to introduce a new scheme or provider payment method called DFF. Instead, the goal should be to analyze existing facility financing arrangements and find ways to strengthen desirable health financing attributes associated with DFF, such as funds for operations flowing directly to facilities and facility managers having the authority to manage these funds. Indeed, in some contexts, this may entail transitioning existing PBF projects.
- DFF must happen within the system. The reform being integrated into PFM rules, governance arrangements, and information platforms is inherent to DFF and critical for ensuring its sustainability.
- DFF reforms should target a comprehensive range of services. While it is nonsensical to have a parallel DFF platform to channel only donor funds for vertical programs, DFF can support the harmonization of donor inflows with domestic public budget financing for health. This can unify payments to offer a coherent incentive environment for providers.
Following these suggestions will ensure that DFF is not viewed—negatively or positively—as the new silver bullet, and instead becomes the engine for meaningful and lasting health reform.
 USAID, Global Fund, GAVI, and the World Bank are supporting countries implement DFF reforms.
 Some co-authors of this article have been participating in such discussions.
About the Authors:
Nirmala Ravishankar is a Senior Fellow at ThinkWell and resides in Chennai, India.
Edwine Barasa is the Director of the Nairobi Programme of the KEMRI Wellcome Trust Research Programme and a Visiting Professor of Health Economics at the University of Oxford. He is based in Nairobi, Kenya.
Sophie Witter is a Professor of International Health Financing and Health Systems at Queen Margaret University, Edinburgh. She lives in Yorkshire in the United Kingdom.
Angellah Nakyanzi is the Uganda Country Manager for ThinkWell, based in Kampala.
Joseph Kutzin is a health financing specialist who worked for the World Health Organization in a range of positions, and currently lives near Geneva in Switzerland.
Competing interests: None
Handling Editor: Neha Faruqui