Health financing in the poor countries : cost recovery or cost reduction?

Many donor agencies have tended to view the problem of financing health care services in developing countries as a problem of cost recovery. Policy reforms based on this view have therefore focused on measures, such as user charges and insurance, intended to generate additional revenues to meet recurrent resource needs. However, the potential to actually reduce costs by eliminating waste in health systems has not been given adequate attention. The health care system in Mali represents a case study in the difficulties of providing effective care in poor countries. Households bear most of the burden of health financing, accounting for about 75 percent of total sectoral expenditures in 1986. Revenues from user charges represent only a small fraction of operating expenditures in government health facilities. Changing the present system so that cost recovery becomes a significant proportion of actual expenditures would be extremely difficult. However, realistic possibilities do exist for reducing the costs of pharmaceuticals. With improved drug management practices, Mali would not need additional external aid to make drugs available in its health units and dispensaries. This suggests that the therapy for improving public health services should be based primarily on cost reduction, not simply cost recovery. Such a focus on cost reduction is consistent with the goals of the Bamako Initiative.