In 2023 in my health blog I described the budget shortfalls facing most South African government departments. From my perspective the most pressing consequences of these shortfalls are those affecting provincial health departments. Recent developments including an open letter addressed to the Minister of Finance from health professionals in the Western Cape have again highlighted this issue.
Many provincial health departments in South Africa have a history of what are euphemistically termed “accruals”, which stated otherwise is an inability to settle outstanding accounts within either the required 30 days or even a financial year. These departments have in the past been unable to remain within their approved budgets. An implication of “accruals” is that suppliers then bear the consequences of the debt which for smaller companies can spell bankruptcy.
The gravity of the current situation has been highlighted by pronouncements from government indicating that the country’s ability to absorb an even greater fiscal deficit has reached its limit due to an extent the granting of unaffordable salary increases to public servants. National Treasury has indicated that there is now an urgent requirement for government to remain within the available funds whatever the consequences.
Given that reality, what options are now open to management in the public health sector in this fiscally constrained environment? As the previous head of two provincial health departments during my career, I at times faced similar challenges although of a somewhat lesser degree. The current situation has lead me to reflect on what advice I would have for those in management.
I would recommend both a short and longer-term approach and what follows are just some of my thoughts on how to manage this challenge although there is much more specific detail on which I cannot fully elaborate here.
Guiding my approach would be four principles:
- That utilitarianism should guide decisions to ensure that the available resources are utilised to the greatest benefit of the majority of those dependent on the public health service.
- That acute and emergency services are maintained as a priority and that those with life threatening conditions, acute or chronic, are prioritised over those with lesser health challenges.
- That it is unethical, and indeed illegal, to procure goods and services for which funding is not available meaning that so-called “accruals” cannot be tolerated.
- That the process should be as inclusive as possible understanding that at a certain point decisions will have to be taken that may not have the approval of everyone.
In the short-term my first step would be to review a breakdown of the current expenditure in the department and assess projected future expenditure. In this review I would seek to identify expenditure that is committed without the possibility of reduction and differentiate this from expenditure where a discretionary element remains. It is important to accept that a careful cost-benefit analysis of the services provided may result in the temporary or even long-term cessation of certain services not meeting the threshold set through a utilitarian approach pending the availability of additional funding.
My experience as a consultant in various provincial health departments over the last seven years indicates that despite limitations there are options that can be adopted to reduce personnel expenditure even in the short to medium term. In most South African provincial health departments, expenditure on staff amounts to 65% or more of the total budget and in terms of South African public service legislation once permanently appointed after a probationary period, retrenchment of staff is not an option. Given the need for short-term options to reduce expenditure I would determine which staff have not been permanently appointed such as those on fixed term contracts or those employed through various employment agencies. Where there is a possibility of either terminating contracts, not employing staff though an agency and rather utilising existing permanent staff or redeploying current staff into more productive roles, these are options that I would consider.
Other options to reduce personnel expenditure could be a decision not to fill certain vacant posts on the understanding that posts critical to the function of the department be they clinical, administrative or managerial would indeed required to be filled. Given an annual attrition rate in most departments of between 4 and 6% due to retirements, resignations and death, not filling these posts does provide some possibility although limited, for an immediate reduction of personnel expenditure. However, I would oppose centrally imposed moratoriums on all appointments. This is a blunt tool that has in the past harmed service delivery. Rather what is required is a nuanced approach that enables managers to make appropriate decisions but also allows senior management to monitor staff numbers and appointment trends on a frequent basis. Prerequisites for this to be successful are an accurate reflection of staff employed on the staff establishments and systems to enable assessments of both the need and funds available for staff appointments.
In making these staffing recommendations, I make the assumption that payment of staff for overtime work is strictly monitored to ensure that such work is both needed and to the benefit of the services. In similar vein, all staff must meet the requirements of their performance agreements and not abuse sick leave which while not in itself reducing expenditure will reduce the need for staff to undertake overtime duties or the need to seek to employ additional staff through agencies. In my experience in the provinces where I have worked as a consultant this has not always been the case and is an option that should be considered.
Goods and services, which includes pharmaceuticals and surgical supplies are the next major expenditure of provincial health departments and as with staff are essential for the provision of quality healthcare. However, various strategies, including effective logistics and supply chain management, are possible to contain expenditure without necessarily impacting directly on the quality of the healthcare delivered. An initial step is to accurately determine the expenditure trends of the various budgetary line items, which require a granular analysis of these trends at district and institutional level. The aim of this exercise is to ensure that every item that is procured is essential for service delivery and that there is minimal wastage. Outliers in utilisation can then be further analysed to determine the cause and intervention if required. An initiative to involve clinicians and managers in strategies aimed at doing more with what is available may bear fruit. I had an experience of just such a successful initiative when I headed the Free State Department of Health.
Possible renegotiation of contracts could be considered where it is apparent that the payment of accounts within the current contracts will be either delayed or not possible in terms of the funding available. This would be an option preferable to accumulating increasing accruals which as I have indicated above are an unacceptable option. There is also the possibility of exploring the extension of payment periods to 60 days (although this would require National Treasury approval) with larger suppliers who may be willing to consider such an option on the assurance that they will indeed receive payment within this timeframe. This option does not reduce the deficit but does provide the department with breathing room in which to address other expenditure reduction strategies.
Curbing expenditure on items such as catering and travel, often the initial knee jerk response to budgetary challenges, which although resulting in an immediate reduction in expenditure in these areas, will have a minimal impact on the actual size of the deficit. Nevertheless, this is recommended as a mechanism to focus the attention of staff of the fiscally constrained environment in which the department finds itself.
Procurement of major equipment and infrastructural projects within the parameters of both the need to provide services and the contractual obligations could be delayed, re-evaluated or cancelled. In most cases the short-term impact of this step on expenditure would be minimal, but this should not deter management from undertaking such a review.
In the longer-term the need to address the affordable staff establishment within the available budget becomes more critical. If the budgetary challenges extend into future financial years, which appears highly likely, it will become essential to reduce personnel expenditure to affordable levels both to balance the available budget and ensure that the balance between staff costs and that for goods and services is maintained at a healthy 60/40 ratio. This will require reviews of staff establishments aimed at creating leaner establishments with a greater focus on service delivery. In my experience, although I know many will differ from me, there are areas within the staff establishments of health departments that could be rationalised and reduced without compromising the quality of healthcare delivery.
Clearly despite all that I have said, the public health sector must continue to advocate strongly for an appropriate share of the government budget as this is a service that fulfils a basic human right. It is important that in a fiscally constrained environment that healthcare should attract a higher priority than certain other calls on the national budget.
I wish my erstwhile colleagues every strength as they grapple with the challenges that they face. They will not always be popular for many of the decisions that they will be obliged to make. However, by adherence to the principles outlined and making their decisions based on reliable data they will, as did I, rest easier with what they are required to do.
