RHAP Submission to Parliament #MTBPS2017

RHAP Submission to Parliament #MTBPS2017

Submission to the Standing Committee on Appropriations

Re: Division of Revenue Adjustment Bill, MTBPS 2017

The Rural Health Advocacy Project wishes to make a submission on the MTBPS and its impact on health. This submission is structured as follows: First, we consider the current status of healthcare delivery in the public sector, secondly, we comment on the MTBPS and its impact on health care delivery and finally we provide a set of recommendations to minimise the impact on rural health care delivery.


Section 27 of the constitution of South Africa recognises that access to health care is itself a basic human right. Since 1996, we have made significant strides in realizing this right through the expansion of access to health care, we have enrolled over 3,5 million people living with HIV on life saving ART, our TB cure rate is steadily improving, our maternal mortality while high, continues its downward trajectory and we have virtually eliminated mother to child transmission. We have achieved this on the back of significant investments, which included the building of new facilities, investing in the training of health care professionals and the implementation of progressive reforms[1]. In an article published in the 2017 South African Health Review, Bletcher et al provide a useful analysis of health expenditure trends over the 20-year period. Over the period government expenditure has grown exponentially from just R18 billion in 1995/96 to over R220 billion in 2015/16 in real terms[2].

This Medium-Term Budget Policy Statement is introduced at a time of limited economic growth, declining budget revenues and growing poverty and inequality. A number of key events on the horizon could impact significantly on the economic outlook. Foremost of these is a further sovereign credit downgrade which could lead to significant capital outflow with some analysts predicting outflows in excess of 14 billion USD as the country falls out of the JP Morgan international bond index.[3]

This Medium-Term Budget Policy Statement is introduced at a time of limited economic growth, declining budget revenues and growing poverty and inequality. A number of key events on the horizon could impact significantly on the economic outlook. Foremost of these is a further sovereign credit downgrade which could lead to significant capital outflow with some analysts predicting outflows in excess of 14 billion USD as the country falls out of the JP Morgan international bond index.[4]

These risks are not fully translated into the current revenue trajectory which forecasts moderate growth of around 1,9 % percent in the outer years which is largely crowded by increased public sector expenditure as such the revenue shortfall is expected to exceed R160 billion.[5] Given the number of credible scenarios that may play out over the medium term it may be prudent to err on the side of caution and assess the likely impact on the functioning of the health system.


In our February submission to the standing committee on appropriations in response to the tabling of the 2017 National budget, we argued for urgent review of current financing mechanism for health. Currently health is funded through a provincial equitable share which is augmented by number of earmarked funds or conditional grants.

Firstly, we argued that the composition of the equitable share formula in its current form was prejudicial to rural provinces because the majority of the PESF components are based on population numbers including school enrolment, health care utilization data as well as midyear population estimates. The formula does not adjust for context specific lower population densities which often resulted in diseconomies of scale which then led to higher service delivery costs.

Secondly, while the equitable share formula was quite transparent, similar resource allocation processes did not exist at the provincial level. Given that the provincial equitable share allocation is unconditional, the current process allows significant discretion in the allocation of funds. With equitable share allocations resourcing over 70% of provincial health expenditure, the risk of this discretion cannot be understated. Currently 30% of provinces allocate less than 27 % of their equitable share to health.[6]

The National Department of Health leads on development and implementation of policy and regulation of the health system. Additionally, it funds a number of strategic health programs through the administration of a number of conditional grants. While the department has yet again received an unqualified audit report, a number of key risks were identified.[7]

·      The department spent 99% of its budget while only achieving 55 % of its objectives

·      Challenges with pharmaceutical management, of the 40 facilities visited, over 30 had stock that expired on the day.

Program 5 Hospitals, Tertiary Services and Workforce Development is the largest program with the national department. It houses the key Health Facilities Revitalisation conditional grant which finances the building and revitalization health facilities. It has an allocated budget of R19,5 billion rand of which 99% was spent despite only achieving 25% of its set targets. A key driver was the underperformance of the health facilities revitalization which missed a number of key targets. For instance, only 67 facilities (37.6%, target was 178 facilities) were maintained, repaired and/or refurbished in NHI Districts. Only 37 facilities were maintained, repaired and/or refurbished outside NHI Districts (12.1%, target was 307). Only half (22) of the targeted number of community health centres (CHCs) were constructed and/or revitalised (target was 44). Three (target was 8) hospitals were constructed or revitalized.

Further challenges were also exposed under program 3 which houses the HIV/AIDS TB conditional grant. The department spent 97% of an available budget of R 16 billion despite achieving only 50% against target. Since 2009 there has been a more than fourfold increase in the number of patients enrolled on ART, the target of 4 million patients on ART after 12 months was not achieved and the department’s reluctance to confirm the actual achievement is concerning.

The challenges facing health care delivery are particularly complex. These include the fragmented and often uncoordinated resourcing of health care delivery. Health services are delivered to people by people. So, while health care needs have expanded, resources for health both human and financial have declined in real terms. The consequences have been articulated in the recent enquiry into the status of health care delivery by a ministerial task team.[8] The findings of this report reveal a health system in crisis with poor maintenance of essential equipment and facilities. Continued freezing of critical health posts which has a disastrous impact on service delivery in public sector health facilities. It is through this lens that we consider the service delivery impact of the health financing proposals presented in the MTBPS.

What the budget means for health

In the MTBPS, the minister proposes an annual 7,5 percent in health expenditure over the next three years. In the context of declining resources, the increases in expenditure is welcomed, however when adjusted for inflation, the budget only increases by a mere 1,7 percent. Considering that the current service delivery context within health is already constrained, key national programs are underperforming. The planned increases will not be sufficient to address the health care needs of the population.

In his 2017 Budget, former Finance Minister Pravin Gordhan announced the establishment of a transitional National Health Insurance (NHI) fund would be established in order to support the priority health programmes. He proposed that this fund would be financed by the withdrawal of the medical aid tax credit which had the potential to raise up R20 billion in funding. At the time, he indicated that further detail in this regard would be provided in the 2017 MTBPS.

Accordingly, Minister Gigaba noted Cabinet’s adoption of the White Paper on NHI in June 2017. The White Paper estimated that full implementation of NHI would increase public spending on health from 3.9% in 2017/18 to 6.2% of GDP by 2025/26 (assuming a long term economic growth rate of 3.5%). Given the changing context the MTBPS provided a reassessment of the situation (against a more conservative long-term growth rate of 2.5%), highlighting that health spending through a fully implemented NHI will require 6.8% of GDP in 2025/26.

This scenario explains the caution in the MTBPS that:

In the absence of higher economic growth, several of government’s current policy commitments will need to be revisited, because their cost implications appear to exceed available resources.[9]

On the financing of the interim NHI fund, particularly the removal of the medical aid credit Minister Gigaba indicated that the proposal is being considered by the Davis Tax Commission and would be addressed in the February 2018 budget. However, treasury sources suggest that removal of the medical tax credit would negatively impact low and middle income earners and as such is considered regressive. As such it is unlikely that the proposal would recommended in the current climate.

In absence of additional resources, the introduction of the NHI transitional fund is unlikely. However, given the current challenges in coordinating the existing conditional grants, now may be a good opportunity to review the consolidation of the current grant architecture which may provide sufficient resources for the establishment of the transitional fund. Furthermore, while some aspects of the removal of medical aid tax credit may be regressive, we urge the committee to explore ways to mitigate the impact on lower income families. The introduction of the interim NHI fund is urgent as prioritises vulnerable populations ability to access care.

The MTBPS announced a reprogramming within the HIV/AIDS conditional grant to support the development of an integrated community health worker. Community health workers have played a critical role in delivering the success in the HIV/AIDS program. We hope that this initiative will allow for the implementation of a standardised countrywide community health worker program that will allow for the full integration of this important cadre into the health system.

The Medical Research Council (MRC) investment case has shown that the CHW programme can improve health outcomes, create jobs and can be a cost-saving intervention.[10] But to achieve these good results, we need additional investment of a further R 4 billion in the system. The current budget allocation of R1,4 billion will be grossly insufficient. Government funds will need to be reprioritised to this programme and it cannot come from within the health budget.

Considering that the ballooning of wasteful and irregular spending across government to approximately R50 billion, the strengthening of financial management practises could raise the required R 2,5 billion that is required to fully implement this important initiative.

Addressing the HRH Crisis

In our statement[11] prior to the release of the MTBP, we outline a number of priorities that require urgent action from the perspective of rural health. This includes the availability of suitably qualified staff and the filling of critical health posts. Since 2012 as the government implemented cost containment measures to mitigate against the impact of the 2008 global financial crisis, we have seen a steady decline in the number of health posts in the public sector. In total for the period 2012-2016, over 5500 health posts had been lost. If we consider that during the preceding period 2006-2012 we in fact registered a real growth of approximately 10 000 posts per year if this growth continued which is likely given the expanding health care need it can be assumed that a further 40000 posts would have been added. Accordingly, the net reduction may be understated and the real loss to the system may in fact be closer to 35 000. Proposals in the MTBPS do not protect critical health posts and further cuts to the health workforce will require careful consideration of the impact on service delivery.[12]

In RHAP’s 2016 report exploring the impact of continued underinvestment in Human Resources for Health (HRH), we show both the gravity and the complexity of the HRH crisis for rural communities in South Africa. While many of the challenges described affect health services in both urban and rural areas, it is clear that rural South Africans are uniquely vulnerable to the effects of staffing cuts, and are disproportionately affected. In our publication “Cutting Human Resources for Health. Who Pays? (2017)”, we argue that poor access to healthcare for impoverished communities plays a critical role in the vicious cycle of illness and poverty. In the climate of budget austerity, healthcare services for the prevention and treatment of disabilities have been the first casualty, leaving most vulnerable households without care. [13]

Public sector employees’ expectations of a 12,5 percent wage increase take place in a context of a health budget that only increased with 7,5 percent, which as explained above is an actual decrease when taking medical inflation into account. An increase to salaries will result in a decrease in services unless savings can be made elsewhere or additional income is found outside of health. While we support labour rights to demand higher salaries for lower salaried employees, stakeholders will need to think carefully about how to ensure services to the most vulnerable communities are protected in this process.

This starts by funding and prioritizing primary healthcare and vulnerable groups. RHAP in collaboration with Africa Health Placements have developed a set of prioritization guidelines and tools that allows for the consideration of equity, clinical consequences and vulnerability of health in the planning of health care during austerity. This follows engagements with National Treasury and Health in 2015 and 2016 on the issue of protecting rural posts during budget austerity.

Addressing the solvency risks to healthcare delivery

As alluded to above in the background section, we have previously called for the reform of the provincial equitable share formula specifically for the inclusion of rural adjusters that would mitigate the increased cost of service delivery in rural provinces. These added rural costs are the result of the varied implementation contexts, which are influenced by lower population densities, large distances between facilities and resulting diseconomies of scale. We further reported on the failure of provinces to implement sound financial policies in addressing the impact of fiscal consolidation resulting in the growth of unfunded commitments in a number of provinces. Unfunded commitments or accruals are expenditures that have been incurred but in the absence of sufficient funding are rolled over to the following financial year. This practice has a significant impact on the delivery of healthcare as in meeting these commitments, a significant slide of the operational health budgets is lost to commitments from the previous year, leading to a vicious cycle of underfunding often with disastrous consequences.

In a joint sitting of the portfolio committees of health and finance investigating the coordination between the national and provincial departments, a number of provincial departments most notably the Eastern Cape, Kwazulu Natal and Limpopo provinces reported unfunded commitments in excess of R13 billion and growing. What this suggests is that despite nominal increases in health budgets, when adjusted for medical inflation, wage increases and expanding HIV / AIDS coverage, current provincial allocations for health are insufficient. Urgent reform is needed in how we allocate resources for health but more immediately we need to protect the health service delivery platform. There is evidence that points at high levels of unmet need and regression in access to health in some parts of the country.

So, while we recognize the government’s acknowledgement of the important role of provinces in delivering social services such as health, simply increasing provincial equitable share allocations will not address the current challenges in health care delivery. As evidenced in the alarming fiscal framework, the outlook for expenditure growth is fairly bleak and it is essential that we develop a new framework that acknowledges the funding crises and considers equitable revisions to the current funding arrangements.

To this end we suggest the following:

  • A review of current conditional grant architecture with a view to prioritizing funding to meet immediate needs (for example the health facility revitalisation grant could be reprogrammed to prioritise essential maintenance as opposed to funding new facilities).
  • In preparation for the implementation of the NHI, the consideration of a new conditional grant for the delivery of district health services
  • Immediate reprogramming of unspent funds and rollovers to support the funding of accruals and the strengthening of district health management
  • Conducting a health system wide organisational capacity assessment which includes the distribution of staff and infrastructure that could provide the basis for the development of a costed prioritisation plan.

We would like to request an opportunity to present our recommendations to the standing committee on appropriations

Contact person:

Russell Rensburg

Programme Manager: Health Systems and Policy

Rural Health Advocacy Project

A partnership between Wits Centre for Rural Health, RuDASA and SECTION27

Tel: +27 010 601 7427

Fax: +27 010 591 0499

Cell: 0795443317

Email: russell@rhap.org.za

Web: www.rhap.org.za

Facebook: Rural Health Advocacy Project

Twitter: RHAPnews

[1] National Department Health annual report 2016

[2] Mark Blecher M, Davéni J, Kolliparai A, Yasteel Maharaj Y, Mansvelder A, Gaarekwei O. Health spending at a time of low economic growth and fiscal constraint.



[5] National Treasury, 2017 Medium Term Budget Policy Statement, Annexure a

[6] National Department of Health, Presentation to joint sitting of the standing committee for finance and health 22 March 2017.

[7] Parliament of South Africa, Budgetary review and recommendations report of the portfolio committee on health. 18 October

[8] Report of the Ministerial Task Team on Public Health Facilities , National Parliament ,01 November 2017

[9]National Treasury, 2017 Medium Term Budget Policy Statement. P. 57. Avalable via http://www.treasury.gov.za/documents/MTBPS/2017/mtbps/FullMTBPS.pdf

[10] Daviaud E et al, Saving lives Saving Costs ,Investment Case for community health workers in South Africa , June 2017