Experiences with demand-side financing and voucher schemes

Empowering Clients to Exercise Choice

Von Wolfgang Bichmann

Insurance- and tax-funded systems are the most common approaches for financing health systems. Besides these comprehensive instruments there exist targeted approaches like voucher schemes.

Patients receiving treatment in Ankavandra, about 230km west of the Madagascan capital Antananarivo © Guy Oliver/IRIN

In health systems providers interact with users (clients). They provide inputs such as services, drugs; devices as well as knowledge in order to produce certain results: access to information, prevention, treatment and care of a certain quality. Governments regulate the health system, assure access to health as a human right and are responsible for organising the financing of the system. Traditionally, input costs such as infrastructure and equipment, salaries, products and service delivery are financed by government budgets, health insurance or health maintenance organisations.

Health Financing Approaches and Demand Side Financing

Increasingly, however, demand side financing approaches (Gupta et al, 2010 / J.O. Schmidt et al., 2010) are used which support consumers’ choices and decisions and increase clients’ purchasing power. The term ‘results-based financing’ (RBF; Musgrove, 2010) “refers to any program that rewards the delivery of one or more outputs or outcomes by one or more incentives, financial or otherwise, upon verification that the agreed-upon result has actually been delivered. Incentives may be directed to service providers (supply-side), program beneficiaries (demand-side) or both.” (Results-Based Financing (RBF) for Health: http://www.rbfhealth.org/rbfhealth/

There exist various health financing options – comprehensive approaches like insurance- and tax-funded systems as well as targeted approaches like voucher programs and performance-based approaches (Fig.2)

Comprehensive Approaches

Not Comprehensive Approaches

Pre-paid mechanisms/risk pooling

  • Sochial health insurance
  • Community health insurance
  • Private or voluntary insurance


  • Covering a specifi c intervention/
    package – e.g. STIs, Delivery
  • Very high administrative cost
  • Mostly not aligned with existing
    fi nancing mechanisms

Financing from general revenue


  • Tax-funded, integrated health



  • Only certain interventions covered

  • Additional administrative cost

  • Even in highly developed country (Britain) with mixed success

Market Approach

  • Out-of-pocket payment


Fig.2: Availabel Health Financing Options


Direct payments attain the highest share of Total Health Expenditure (THE) in the poorest countries and are relatively lowest in high income countries. They are the least equitable form of health funding, have failed reducing inequalities and waivers have proven to be unsuccessful. Furthermore, inofficial payments also restrict access. However, direct payments benefit provider and client, establish accounta¬bility, can be regulated (tariff) as well as subsidized.

Demand side financing in health through targeted approaches and subsidies enables the poor to use specific cost-effective health services, whilst allowing a competitive market for its provision. This is considered to be more beneficial than using the same resources to subsidise the supply side as it enables the poor population to purchase high quality health and high impact services at a subsidised cost, thus increasing access to high-impact services addressing specific MDGs – in particular 4 and 5. (Por Ir et al, 2010)

In Africa, generally, public health services do not reach the poor sufficiently, as out-of-pocket payments required are substantial. Therefore, they need to be better targeted in order to achieve the MDGs.

And the Report states that in order to extend the proportion of population covered by pooled funds, the coverage needs to be extended to more people, more services need to be offered and a greater part of the costs need to be financed. Yet, none of the high income countries with Universal Coverage actually covers 100% of popu¬lation, 100% of services as well as 100% of cost. And the Report acknowledges “In areas where barriers to access are substantial – poor, isolated rural areas – CCTs and voucher schemes may be the only short-term means to ensure people get the timely care they need” (p.52).

A proper analysis for health financing options, therefore, needs to get organised along the traditional ‘planning cycle’: establishing the vision, situation analysis, financial assessment, constraint assessment, establishing a strategy for change, implementation and finally monitoring and evaluation.

There do exist useful M&E approaches, monitoring matrices and indicators at all stages of the causal chain from input to impact – presently, there doesn’t exist any valid method to directly link impact to the financing approach used (Fig.7). (L. Brenzel et al., 2009)







National Health Plan


Vaccines & Supplies




Technical Support


- Supervision

- Social Mobilisation

- Logistics systems



Capacity Building &


Improved Services

- Access

- Savety

- Quality

- Efficiency

- Effectiveness


Increased Coverage

Reduced Inequality


Reduced morbidity and mortality


Presently no valid method available to directly link impact to financing approach.

Fig.7: Progression from Health Inputs to Health Impact

Voucher Scheme Experiences

Competitive voucher schemes (World Bank 2009), have the following advantages: They
• enable governments and donors to purchase outputs
• have the potential to target subsidies to efficient and cost-effective services and to poor populations living below poverty line (BPL)
• link payment with performance and stimulate provider competition including between private for-profit, private not-for-profit and public providers
• create greater choice for users and promote consumer empowerment
• encourage innovation and promote public private partnerships
• make use of surplus capacity in the private sector
• improve equity, efficiency, choice, responsiveness and quality of services
• may prepare a given population to get used to a national health insurance scheme by demonstrating the advantages of prepayment schemes.

However, competitive voucher schemes may also have certain disadvantages and challenges: They
• require management capacity in administrating the financing schemes, accrediting providers and this may result in high administrative costs
• require a complex setup of effective fraud control in order to avoid leakages, abuse, collusive behaviour, moral hazard and cream skimming
• may have a weakening effect for the public sector if quality provided in private facilities is better

Uganda is a largely rural country with a total population of 33,8 million inhabitants of which only 13% live in cities. There exist huge challenges to improve access to good quality health services. Half of the total population live under the poverty line. The total fertility rate is high with 6.16 births per woman and facility-based deliveries are at 42% (UNFPA 2010).

Kenya has a population of 40,9 million people with 22% living in cities. The total fertility rate is somewhat lower (4.78 births per woman). 42% of all births take place in health facilities, however this proportion is significantly lower (18 %) amongst mothers belonging to the lowest economic quintile of the population. 414 out of 100.000 pregnancies result in maternal death. In Kenya, 20% of population live below the poverty line.

In both countries a higher proportion of women delivering under skilled supervision is considered as the key mechanism to reduce maternal mortality, yet public and private facilities charge for deliveries in order to to cope with their costs. Both countries opted for experimentation with voucher schemes co-financed by German Development Cooperation through KfW. The Kenia experience focused on 3 districts and 2 Nairobi slum areas started in 2006 and the Uganda program – also supported by World Banks’s Global Program on Output-Based Aid (GPOBA) – began its activities in 4 pilot districts in 2008.

The implementation of both programs is contracted out after a public invitation for offers to a qualified Voucher Management Agency. In Uganda, the professional NGO Marie Stopes International (MSI) with their local affiliate MSK was selected, whereas in Kenia the international chartered accountant PriceWaterhouse Coopers (PWC) qualified for the task.

Vouchers are sold at a nominal price to target populations living below poverty level which allow access to safe delivery care and treatment of sexually transmitted diseases (Uganda) / safe delivery care and long-term family planning methods (Kenya). ‘Safe delivery care’ includes ante- and post-natal care for both mother and baby as well as caesarean sections, if needed. Vouchers are accepted in accredited facilities – public and private in Kenia, but private only in Uganda, as public facilities are not allowed to have cash income there. The acceptance of the scheme by potential users well exceededs the expectations. And it became evident that users made their choices and facilities received incentives to improve access for clients, facilities as well as quality of care.

Successful accreditation of facilities based on transparent quality criteria is one of the cornerstones of the voucher systems (Fig. 8). An independent external agency is handling the accreditation process in each country. Whereas in Kenya the parastatal National Hospital Insurance Fund (NHIF) was mandated as accreditation agency, in Uganda, due to the inexistence of an independent agency, the Ministry of Health together with the NGO Marie Stopes Uganda selected facilities in the programme region, and MSI/U is now supervising the quality standards.

Economic reasons are the most important incentive for private providers to join the program assuring a more reliable income flow and minimizing the risks of inability to be paid for services rendered. They appreciate that they are trained in management and administrative skills and have access to professional upgrading and retraining. Efficient claims processing and timely reimbursement attract and retain high perfor¬ming public, for-profit, and non-profit providers and ensure their responsiveness to poor clients. The Uganda and Kenya voucher programmes demonstrate that, if voucher clients bring in revenue, private sector providers are very interested and willing to deliver essential quality health services even to poor clients. Contrary to the often mentioned danger that a demand-site financing approach may weaken the public sector it seems that in Kenya the participating public health facilities have equally been strengthened.

Stringent fraud control had to be established by the VMOs and accompanying research has been organised – funded by the Bill and Melinda Gates Foundation in the context of their global research programs – using external professional bodies, including the Population Council and national partner universities. Cost of programs is closely evaluated and it is evident that administrative start-up costs are high. On the other hand, administrative processes in client follow-up, claims processing, accounting and skills development contribute to system strengthen of social health protection continuously. In Kenia, therefore, the program is presently incorporated in the National Health Insurance Fund and is now a conceptual part of the country’s ‘vision 2030 strategy’.

Voucher programs enable governments to purchase desired outputs by targeting subsidies for services effectively to poor, below poverty line populations. They make health service providers more accountable because of the direct link between the services rendered and reimbursement. Ministries of Health are now in a better position to regulate private sector providers using financial incentives, an important tool in terms of sector stewardship and regulation. They provide access to standard quality services for women that otherwise could not afford them, thus reducing economic discrimination and fostering self-esteem amongst women clients. At present, impact of these programs in their pilot areas in terms of reducing MMR and IMR (MDGs 4 and 5) is a plausible assumption with first supporting results to be further validated by the accompanying research efforts. (Bellows et al, 2010)

*Dr. Wolfgang Bichmann is Head of the Sector and Policy Division Health, Education and Social Protection in KfW Entwicklungsbank (KfW development bank). With a background in public health, tropical medicine as well as social sciences: Dr. Bichmann holds degrees of Berlin, Heidelberg and Liverpool universities and has published on tropical public and community health. For several years he chaired a OECD/DAC-WHO working group on poverty and health as well as the Reproductive Health Supplies Coalition (RHSC). Contact: wolfgang.bichmann@kfw.de


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