Purchasing of Service
What services should the government finance? In low income countries, budget constraints impose restrictions or become binding at relatively low levels of per capita expenditure. The states must therefore make their financing choices with careful considerations on whether the goods/services are merited. Usually, a small but important collection of health related activities must be financed by the state, that too at the socially optimum level of consumption. Such public health activities are particularly important at low income levels, for both epidemiological and economic reasons. More importantly, from the perspective of reaching the millennium development goals (MDGs), effective health interventions to combat child malnutrition, child mortality, maternal mortality, and communicable disease mortality have been charted for all health targets. These interventions must be financed by the public sector as they provide public goods or generate externalities. However, as many of these services are underused especially by the poor, measures to encourage their use by the poor must also be taken up. For a targeted population, public financing of interventions which are private goods may also be justified from an equity perspective. The decision on which health services the government should purchase in low income countries is usually made not only on economic considerations but also on social and political factors. The decisions also have important implications for the opportunity cost of the resources used (i.e. other investments not undertaken).
This should therefore be duly weighed in terms of the implications of such decisions on outcomes and growth. Ideally, it is best for low income countries to first finance a universal, small package of services, essentially encompassing public goods, goods with externalities, and other interventions with proven impact on the MDGs of health. Other investments for clinical care involving higher expenditures should be financed for the poor through the targeting mechanism.