Devolution and Corporatization of Health Services

The solution or the problem?
Second of three parts

According to data gathered by the Health Alliance for Democracy (HEAD), five out of 10 Filipinos die without receiving medical attention. The average hospital bill is three times the average monthly income of a worker. And yet the thrust of the Arroyo administration is to reduce its budget for health, decentralize and “corporatize” health services


Gauging by the decreasing allocation to health, government seems to be abandoning its responsibility to protect and respect the people’s right to health.

Moreover, with the devolution of health services to local government units, the role of the Department of Health (DoH) was reduced to allocating foreign loans, regulating clinics, hospitals, and the pharmaceutical industry, training medical professionals, and administering pilot programs. It passed on the responsibility of delivering the much-needed health services to 77 municipalities, most of which are perpetually cash-strapped.

Since the mid-1980s, the health budget has never gone beyond four percent of the total national appropriations. And since 1992, the start of the devolution of health services and the transfer of formerly-managed DoH hospitals to local government units (LGUs), the budget for hospital and regional operations and services had gone down even more.

In 2005, the health budget got a measly 1.1 percent reflecting the low priority given by the Arroyo administration to health. This is a pittance compared to the allocation for debt servicing, 33 percent, and the Department of National Defense (DND), five percent

For 2006, the national government proposed a P1.053 trillion budget (US$19.4 billion at US$ 1:P54.15), an increase of about 14.7 percent. But debt servicing still got the biggest share at 32 percent. Next is social services at 28 percent, which is to be divided among education, housing, land distribution, health, etc.

As of 2000, every Filipino paid P1,836 (US$33.9) for debt servicing. This will be increased to P2,968 (US$ 54.81) in the proposed 2006 budget. Also in 2000, every Filipino is earmarked P429 (US$7.92) for defense. But in the proposed budget for next year, the government will spend P458 (US$8.45) per Filipino per annum for defense. This computation is based on the budget of the DND, which excludes the proposed P1.2 billion (US$22.160 million) intelligence fund and the P3 billion (US$55.401 million) for the counter-insurgency program.

Meanwhile, the budget for health reflects an opposite trend.

In 2000, the budget of the health sector was P14.66 billion (US$270.729 million). With that, the government was to spend a measly P191 (US$3.52) per Filipino per year for health. This was a mere P0.52 (US$.009) expenditure per Filipino per day. The 2006 budget for health is even lower by seven percent at P13.66 billion (US$252.262 million).

The proposed 2006 budget, meanwhile, will allocate a measly 1.3 percent to health. This means that every Filipino is allocated P119(US$2.19) for the entire year or about P0.33 (US$.006) per day, even lower than this year’s P0.35 centavos.

The relatively low level of health expenditures in the country compared to other middle-income countries had been affirmed in a 1993 study by no less than the World Bank. Comparing the health care spending of 10 countries in the Asia-Pacific region, the study revealed that the Philippines had the second lowest per capita health expenditure and also ranked as the second lowest in terms of health expenditure as percentage of gross domestic product (GDP). The share of health spending to gross national product (GNP) of the country does not come close to the standard of the World Health Organization (WHO) of at least 5 percent of GNP for middle-income countries.

Lack of sources

Insufficient resources for the health sector continue to be a major concern. From January-September, the Bureau of the Treasury (BTr) reported that total government revenues amounted to P589.49 billion, increasing by 14.2 percent compared to the same period in 2004. However, government expenditures estimated at P698.0 billion (US$12.890 billion) increased by 6.0 percent, resulting in a deficit of P108.48 billion (US$2.003 billion). The deficit was also higher by P27.7 billion (US$511.542 million) compared to the same period last year.

For the first two months of the year, the records of the Department of Finance (DoF) showed that the government has already incurred a budget deficit of P40.1 billion (US$740.535 million). The bulk of government expenditures during these months went to interest payments at P56.862 billion (US$1.050 billion), higher than last year’s P40.776 billion (US$753.019 million)

The chronic government deficit and the priority it gives to debt servicing dissipate whatever revenues it generates. The devolution of health services to local government units, in line with the Local Government Code, even worsened the state of the government’s health services.

Thus, the health sector has remained chronically under funded.

Foreign loans

The government is expecting a budget deficit of P180 billion (US$3.324 billion) this year, comprising 3.4 percent of the country’s expected economic output.

As in the past, the Philippine government hopes to finance this deficit through foreign loans from multilateral agencies such as the IMF-World Bank, developed countries such as the United States and Japan, and commercial banks.

The United States Agency for International Development (USAID) is one source of loans for health. The thrust of the USAID in health can be gleaned from a statement posted on its website, “USAID is developing the private sector as an alternative source of health services.”

The thrust of most, if not all, traditional sources of loans is the reduction in government expenditures and the privatization of social services.

Among the USAID-funded programs was the Health Sector Reform Technical Assistance Project (HSRTAP) from 2001 to 2002. The (HSRTAP) was organized in June 2000 in response to the DoH request for technical assistance support in implementing the Health Sector Reform Agenda (HSRA).

The HSRA aimed to improve health financing, health regulation, hospital systems, local health systems, and public health programs.

To achieve these goals, the HSRA followed five major reform strategies; one of these was to provide fiscal autonomy to government hospitals. This meant that government hospitals must be allowed to collect socialized fees so they can reduce dependence on direct subsidies from government.

To support the exercise of fiscal autonomy, critical capacities like diagnostic equipment, laboratory facilities and medical staff capability were to be upgraded. In addition, the project provided direct technical assistance in implementing the HSRA in an integrated fashion in 16 provinces/cities. Its start-up activity included workshops participated by health system stakeholders coming from the government and private sectors and civil society.

Its other reform initiatives included addressing the legal basis for “corporatization” or privatization of retained hospitals. It pushed for an enactment of a law that authorizes the DoH to “corporatize” its hospitals. For local government units, a Sanggunian Resolution/Ordinance was deemed necessary. In response, the Department of Justice (DoJ) released in 2002 a concurring opinion on the validity of an Executive Order of President Macapagal-Arroyo as the legal basis for converting DoH hospitals into corporate entities.

Formulation of pre-incorporatization steps was also planned which included formulation of the Business Planning Guidelines to guide six priority hospitals?in Capiz, Pangasinan, La Union, Davao, plus the Fabella Medical Center and Quirino Medical Center?in developing their business plans.

After corporatization, government hospitals would be allowed to collect socialized fees in order reduce dependence on direct subsidies from government. To facilitate the corporatization process, the DoH released the “Documentation of Issues and Concerns on Corporate Restructuring of Government Hospitals.”

Meanwhile, the Asian Development Bank (ADB) granted last November 2004 the Philippine government’s request for a loan of $200 million for its Health Sector Development Program.

The goal of the program was “to improve the health status of the population, especially of the poor, and to achieve the health-related Millennium Development Goals (MDGs) of the United Nations.” To access the loan for the program, the Philippine government had to agree to a 15-year term amortization period, including a grace period of three years; an interest rate determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility; a commitment charge of 0.75 percent per annum; and such other terms and conditions set forth in the draft loan agreement. The adjustment costs for the reform program were estimated at $280 million over 3 years

Other loans and grants came from the WHO, Japanese, Australian, French, Spanish, U.S., Canadian, Belgian, and Finnish governments.

Access to health

Based on the DoH’s Handbook on Health Care Financing for Local Health Systems Development, “health care is both a public welfare good and a market commodity. As a public welfare good, it is justified that government pays for health care. As a market commodity, it is deemed more efficient if those directly using or deriving benefits from the goods or services pay for them.”

Health care financing was described as “the study and practice of paying for health care and the impact that such payments can make on the delivery and utilization of health.”

DoH matching grants were made available if local governments introduced new fee schedules. To justify the imposition of higher fees, the DoH encouraged local governments to improve service quality and allocate up-front financing for facility improvements, personnel training and hiring, and drugs and medical equipment.

However, the Health Alliance for Democracy (HEAD), an organization of health workers and professionals, through its secretary general, Dr. Gene Nisperos, said, “The people’s health should not be compromised. Nor should the quality and availability of health services be made contingent on the people’s capacity to pay.”

“This view only reflects the government’s abandonment of its responsibility to promote and protect the people’s rights to health,” he said.

Based on the Census of Population and Housing conducted by the National Statistics Office on May 1, 2000, the total population of the country is 76.5 million. This is higher by 7,887,541 persons or about 10.31 percent from the 1995 census and is 10 times the Philippine population in 1903 when the first census was undertaken.

Its expansion reflected a 2.36 percent average annual growth rate during 1995-2000. If the average annual growth rate continues, the population of the Philippines is expected to double in 29 years.

Nisperos added that this population growth also means growth in poverty incidence.

During the decentralization process, LGUs were given internal revenue allocations commensurate with their income, pegged at 64 percent of their total revenue. The poorest municipalities, therefore, receive the lowest allocations. This impacts on the provision for health and other public services for people who need them most.

Although under the “Social Reform Agenda” the poorest municipalities were given additional financial assistance, LGUs continue to accumulate deficits in their annual budget.

The DoH stressed that devolution, through the HSRA, aims “to improve the health status of the Filipino

people through greater and more effective coverage of national and local public health programs, increase access to health services especially for the poor, and reduce financial burden on individual families.”

“But with the decreasing budget for health, the devolution of health services to cash-strapped municipalities, and the privatization of government hospitals, how can the poor access the necessary services?”, asked Nisperos.

Increasingly, the public shoulder the costs of health. Around 43 percent of the total expenditures for health in the country today came from out-of-pocket payments, based on the World Health Organization country health information profiles (CHIPS). But still per capita health expenditure decreased from PhP1484 in 2001 to Php1435 in 2002. This shows the people are spending less and less for health while the incidence of illnesses do not abate.

Nisperos said that according to the data that HEAD gathered, more than half of the population has no access to health care while five out of 10 Filipinos die without getting any medical attention. The average hospital bill is three times the average monthly income of a worker.

In remote rural areas of the country, large numbers of women and children die without seeing a doctor or a health care provider. Also, 62 percent of infants are born at home, because of economic and cultural reasons. (

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