Public funding of health at the district level in Indonesia after decentralization – sources, flows and contradictions

Following the downfall of President Suharto in 1998, Indonesia underwent a radical political, administrative and fiscal decentralization [1]. Under the new laws and regulations local governments have responsibility for delivery of services in a number of sectors including health. In practice, the actual functional responsibilities of the various levels of government are still unclear. What is clear, nevertheless, is that districts have the major responsibility for delivery of health services.

Assessments of the Indonesian health system over the last decades have consistently pointed to the low levels of public funding as one of the main reasons for the disappointing performance of the sector [2‐4]. For the 15 years before 2000 Indonesia spent less than 0.5% of GDP on health [3], levels considerably below those of other countries in the region [2]. Since 2000, besides the political and administrative changes, there has also been a dramatic increase in public funding of the health sector. Real public expenditure on health more than doubled between 2000 and 2006 (Figure 1), and doubled as a proportion of GDP [2].

Overall, total district public expenditure on health increases with total district revenue (Figure 2). However, this Figure also illustrates that at any given level of revenue per capita there is wide variation in per capita district expenditure on health. For example, at a public revenue level of Rp 500,000 per capita, district public expenditure on health per capita varies from less than Rp 20,000 to almost Rp 60,000, a threefold range. District governments have the discretion to allocate a portion of their revenue as they see fit and the range of expenditure on health indicates that they are making clear choices between sectors. At the same time, most districts have seen increases in public expenditure on health, even if moderate in scope in some cases.

It was widely expected that these increased funds, together with decentralization and the hope of greater freedom to change budget allocations at the district level, would lead to improvement in the delivery of services as the changed accountability relationships resulted in services more attuned to local needs. The results to date are mixed. Immunization rates remain low [5, 6] and have shown little, if any improvement in the period between 2002–03 and 2006 [Heywood, P. Changes in health system performance in 10 districts in Java, Indonesia, unpublished.]; utilization of ambulatory care services is also low and self-treatment remains the most common response to illness for many [3]; there is great variation between districts in the efficiency with which resources are used [5]; and World Bank assessments across districts indicate no relationship between public expenditure on health and immunization coverage or presence of a skilled health provider at birth delivery [3]. The overall quality of care (as measured by knowledge of clinical guidelines) is low [7].

Understanding why district governments are unable to improve health services even though decentralization has provided them increased funds and, apparently, the authority to make any changes needed to do so, requires careful studies of how districts are functioning. This includes the way in which the sector is funded at the district level as well as the how those funds are allocated and utilized. Therefore this paper looks at public funds¹ available at the district level for health and the way in which they are used – this is important for assessment of the effects of decentralization and if we are to improve the allocation and utilization of public funds for health by districts.

Before decentralization almost all resources were transferred to district governments through centrally-specified earmarked grants. The largest of these grants covered civil service salaries and recurrent expenditures; an additional grant was used to finance development spending. Under the new system introduced in 2001 districts are still reliant on central-district transfers for more than 90% of their revenues. Although there was an early belief that earmarking would be a thing of the past² the current reality is quite different as is apparent from Tables 1 and 2. Table 1 lists and defines the various sources of funds for district government under the new system. The relative importance of the various sources for district revenues in 2005 is shown in Table 2. Aggregating across all districts and cities in the country, the most important is the General Allocation Fund (DAU) which accounts for 56% of the total. Untied funds come from own-source revenue (PAD) which contributes 9% of total, shared taxes 11%, shared natural resource revenues 12%; and tied grants under the Special Allocation Fund (DAK) 3%, and from the central line ministries, 9%. For districts on Java shared natural resource revenues are essentially zero³. On paper the General Allocation Fund (DAU) is untied. However, the reality is that the first call on these funds is to pay the salaries and benefits of permanent civil servants who are hired and fired by the central government but assigned to work in the districts; across the country this accounts for half the DAU. Across the country and all sectors, less than half the revenues of district governments are untied; this untied portion is made up of own-source revenue (9%), shared taxes (11%) and half the DAU (28%); the proportion untied may be even lower in some sectors and districts. This is a long way from the earlier promise of decentralization and even some of the more recent statements by, among others, the World Bank [3], which states that "....since decentralization districts decide how to spend their own resources."

Whilst these national level figures across all sectors give a general picture, assessing the extent to which the health sector in a particular district has discretion over their public resources is difficult, made more so by the lack of accurate and detailed information on sectoral expenditure within districts. In addition, the extent of discretion may vary between different health institutions at the district level, especially hospitals as compared to health centers (HC) and the district health office (DHO)⁴. Hospitals operate quite independently of the district health office and health centers and the extent of their claim on the public budget derived from various sources might be expected to be different and vary across districts.

In essence, the public funds for health over which the district has discretion appear in the district budget for health. However, as discussed above, some of the funds in the district health budget are earmarked by the central government. The proportion so earmarked may vary between districts and could be used as an index of the potential districts have, or do not have, to vary expenditure within their total budget according to local needs.

This paper will, for a sample of districts: describe district revenue by source and basic expenditure of funds on health, including the distribution of expenditure across different health institutions and the proportion devoted to salaries; determine the extent to which districts potentially have discretion over use of the funds; and assess variation between districts.

The work reported here is part of a project to understand what is happening at the district level in the Indonesian health sector. It includes a basic enumeration of the human resources and the health facilities in which they work and deliver services as well as estimation of the financial resources available to health through the public purse at the district level. Our aim, in a sample of 15 districts in Java, is to: (i) enumerate the stock of health facilities (public and private) in the health sector in 2006; (ii) enumerate the stock of human resources (public and private) in the health sector in 2006 trained to provide care and treatment for illness – in Indonesia this means doctors, nurses and midwives; and (iii) estimate the funds (public and private) spent on health care in the course of 2006. The results will be reported in separate papers – those for health personnel and health facilities have been reported elsewhere, in [8] and [Heywood P, Harahap N: Health facilities at the district level in Indonesia, unpublished.], respectively. This paper reports on public financing for health.

As much of the information we wished to obtain is not available from the central government we collected it in the districts. This work concentrates on Java where 60% of the Indonesian population live. Resources were sufficient to allow data to be collected in 15 districts. To ensure representation of the range of situations in Java, 5 districts were chosen in each of West Java Province, Central Java Province and East Java Province.

The 15 districts were selected as follows. Between 1997 and 2004 East Java Province and Central Java Province were included in a World Bank Safe Motherhood Project [9]. The endline data for this project were collected in 5 districts in each province (a total of 10 districts) at the time of the 2002–03 Demographic and Health Survey (DHS) [6]. The districts for the endline data collection were selected purposively by the Safe Motherhood Project team to illustrate the range of settings in which the project was implemented. The sample size in these districts was sufficient to provide district level estimates of the basic indicators in the DHS. (The DHS was repeated in the same districts, with oversampling, in 2007. A comparison of 2002–03 and 2007 DHS results for these 10 districts will be presented in a separate paper. [Heywood, P. Changes in health system performance in 10 districts in Java, Indonesia, unpublished.]) West Java was not included in the earlier Safe Motherhood Project. However, in 2007 oversampling for the DHS was carried out in 5 districts. The districts were selected purposively to illustrate the range of district settings in West Java. Table 3 shows the province, population and number of sub-districts in each of the 15 districts included in this study. Using the World Bank classification [2] all 15 districts have low fiscal revenue per capita; Cilacap and Subang have high Gross District Product per capita, the other 13 districts all have low Gross Development Product per capita.

Revenue data (total and source) for the districts for 2006 were obtained from the public finance database for Indonesia (Realized Provincial and District Budget (APBD) Database) [10] maintained by the World Bank Jakarta Office using information from the Indonesian Ministry of Finance. Information from this database represents allocations, and not expenditure, to the districts.

Information on expenditure of public funds on health at the district level for 2006 was obtained from records maintained at the district health office and the district hospital. The information includes expenditure of public funds at the district level derived from the central government, provincial government and district government. The various sources of funds are defined in Table 1. The primary source of data was the financial report on expenditure⁵ for 2006 available at the district health office and the district hospital. The primary informant in each district health office and hospital was the chief finance officer and/or the chief planning officer⁶; they were provided with a spreadsheet template (the template for data from district health office and health centers is shown as Additional File 1) for entering the data. A similar template was used to collect information for district hospitals. Further discussions with the informants were held once the initial data had been collected to, where necessary, clarify the spreadsheet entries and resolve any ambiguities.

The initial aim was to collect expenditure information using a functional classification that included salaries and remuneration, non-salary administrative activities, program activities, civil works, drugs, and equipment separately for the district health office, health centers, and hospitals. However, with the exception of information on salaries and remuneration, at least half the districts were unable to provide this level of detail for the non-salary items. Consequently, the data for each district has been summarized as in two categories, 'salaries and remuneration'⁷ and 'other'⁸ (see Additional File 1).

These data were collected by three teams, one for each province, in 2007. The provincial team leaders were from, and based in, the province, and had previous experience in collecting health data at the district level.

During the Suharto era public funding of health in Indonesia was low and the health services were tightly controlled by the central government; district health staff had practically no discretion over expenditure. Following the downfall of President Suharto there was a radical political, administrative and fiscal decentralization with delivery of services becoming the responsibility of district governments. In addition, public funding for health services more than doubled between 2001 and 2006. It was widely expected that services would improve as district governments now had more adequate funds and the responsibility for services. To date there has been little improvement in services. Understanding why services have not improved requires careful study of what is happening at the district level. The public expenditure information collected in 15 districts as part of this study indicates district governments are reliant on the central government for as much as 90% of their revenue; that approximately half public expenditure on health is at the district level; that at least 40% of district level public expenditure on health is for personnel, almost all of them permanent civil servants; and that districts have discretion over less than one-third of district public expenditure on health; the extent of discretion over spending is much higher in district hospitals; in contrast, district health offices and health centers have discretion over the use of less than a quarter of public funds for health. The current trend is for the proportion of public funds over which the districts have discretion to decrease. There is considerable variation between districts. In contradiction to the promise of decentralization there has been little increase in the potential for discretion at the district level in managing public funds for health – this is likely to be an important reason for the lack of improvement in publicly funded health services. Key decisions about money are still made by the central government, and no one is held accountable for the performance of the sector – the district blames the center and the central ministries (and their ministers) are not accountable to district populations.

¹ The largest component of public spending on health in Indonesia is undertaken through the Ministry of Health (MOH) and related arms of government at the provincial and district levels. Although other government departments also make some expenditures related to health, the total amounts are small relative to that of the MOH and are not included in the funds discussed in this paper.

² See, for example, World Bank [1] which states "......In the new system, central-regional transfers remain the dominant means of financing, but the earmarking is gone." (emphasis added).

³ Revenues from natural resources are concentrated in oil producing regions, none of which are on the island of Java [2].

⁴ Within a district, funds to the DHO and HCs are through a single budget document proposed by the District Health Office, reviewed by the District Planning Office and approved by the district parliament. The HCs are administratively responsible to the DHO. In contrast, the district hospital(s) reports directly to the Head of the District and has a separate budget document which is proposed and approved separately from that for the DHO/HC.

⁵ The actual name of this document varies between districts and health institutions but all responded readily to our requests for the financial report on expenditure for 2006.

⁶ The person most familiar with the financial report for 2006 also varied between districts and health institutions. In most hospitals it was the chief budget officer while in district health offices it was usually, but not always, the chief planning officer.

⁷ 'Salaries and remuneration' expenditures are defined as including: salaries for all staff in the institution (district health office, health center, hospital; fee-for-service distributed to staff; overtime; honoraria (for projects, training, special activities, seminars, workshops); civil service allowances (e.g. food and welfare allowances).

⁸ 'Other' refers to expenditures apart from salaries and remuneration and includes expenditures for: non-salary administrative activities, program activities, civil works, drugs, and equipment.

⁹ The work of which this report forms a part looks at 15 districts on Java. However, the public finance database maintained by the World Bank has complete data for only 12 of these districts and it is those districts discussed in this section.

¹⁰ See Endnote 4.

¹¹ See Endnote 7 for definition.

¹² See Table 1 for a definition of these various sources of funds.

¹³ Thus, the proportion of funds over which the district potentially has control is equal to 1.00 minus the proportion of centrally controlled funds (DAU for salaries, DAK, Dekon, Tugas pembantuan, Askeskin, Askes PNS, loans and grants). These various funds are defined in Table 1.

¹⁴ In both these districts – Ciamis and Ngawi – the proportion of all salaries accounted for by the central government is over 90%.

¹⁵ The broader context is that only one-third of the funds expended in the health sector are public [3]; about half the public funds for health (from central, provincial and district sources) are spent at the district level (Table 4); and then no more than one-third of the public funds at the district level are discretionary. Thus, discretionary public sector funds for health at the district level represent as little as one-eighteenth (1/3 × 1/2 × 1/3) (approximately 5%) of total health expenditure.

¹⁶ Changes in performance of the health system between 2002–03 and 2007 in the 10 districts in East Java and Central Java included in this study will be addressed in [Heywood, P. Changes in health system performance in 10 districts in Java, Indonesia, unpublished.]. The study will use a comparison between the results of the Demographic and Health Survey (DHS) in these years when over sampling in the 10 districts allowed estimates of selected health indicators at the district level.

¹⁷ For example, Law 32 in 2004 and Law 33 in 2004 as well as government regulation (PP) Number 7 in 2008.