Decentralization of health systems in Latin America


Thomas Bossert,1 Osvaldo Larrañaga,2 and Fernando Ruiz Meir3




Decentralization is often a major part of health reform policies. However, there have been few attempts to comparatively study the degree of decentralization and the effects of decentralization on equity of allocations to health, so we do not know how best to implement this reform. This article uses an innovative comparative analysis of the "decision space" that was allowed to local municipalities in the health reforms of Bolivia and Chile, two countries that have had several years of experience in implementing decentralization. The studies found that relatively little decision space was allowed to local authorities over key functions of health care systems. The studies also found that central authorities often reduce the decision space in order to direct more resources to health or to restrict local choice over human resources issues. The studies found that more equitable allocations of health funding were achieved through a common equalization fund for the municipalities in Chile and by forcing the assignment to health of a specific percentage of the central government transfers to municipalities in Bolivia.



In Latin America, decentralization is a major component of many new policies of health reform. Such large countries as Brazil and Mexico, as well as such smaller countries as Bolivia and Guatemala, have initiated major reforms in decentralization (1-3). While decentralization has been enthusiastically embraced by many health reformers as a goal in itself, there is growing concern that decentralization may not achieve the major goals of health reform, such as improved equity of access and coverage, gains in efficiency in the use of resources, improved quality, and sustained financial soundness (4-6). It is clear that the crucial elements of effective decentralization are still poorly understood.

As part of the Latin American and the Caribbean Initiative for Health Sector Reform sponsored by the U.S. Agency for International Development, the Data for Decision Making Project, at the Harvard School of Public Health, has developed a unique approach to the evaluation of the decentralization of health systems.

The usual approach to decentralization evaluation has emphasized the institutional arenas in which new responsibilities and authorities have been granted. This approach distinguishes between "devolution" and "deconcentration." Devolution transfers authority to provincial, state, or municipal governments, while deconcentration shifts authority to regional and district offices within the ministry of health.

The approach we use in our analysis focuses on how much choice is shifted to the different organizations. Using a "principal-agent" orientation, we view decentralization as a means by which the central authorities (principals) attempt to improve health systems by shaping the choices and incentives of the decentralized units (agents), so that the agents make appropriate choices toward the principals' objectives. This approach assists policymakers in the design of an appropriate framework for decentralization and shows them how different ranges of choice by local decisionmakers may result in programs and activities that better achieve general national objectives of equity, efficiency, quality, and financial soundness.

Called the "decision-space approach," this method focuses on defining the range of choice (narrow to wide) over a specified series of functions (financing, service organization, human resources, targeting, and governance) that is allowed to local decisionmakers (7). Each system is significantly different, and the "decision space" allowed to local decisionmakers varies from country to country and changes over time. A general "map" for this approach is shown in Figure 1.



Our approach attempts to establish a link among the range of choices available to local officials, the choices they make¾in particular the innovative choices¾and the effects of these choices on the performance of the decentralized system. For instance, if a local government adds its own resources to the health system, do these new resources improve the equity, efficiency, quality, and financial soundness of the local system?



Using this approach, our project has chosen local teams of researchers to implement applied research evaluations of the decentralization experiences in Bolivia, Chile, and Colombia. These studies have collected and analyzed nationally available data on income and expenditures, human resources, utilization of public health services, and social and economic conditions.

This article briefly reports on the first two completed studies, on Chile for the 1990-1996 period (8) and Bolivia for the 1994-1996 period (9).

The process of decentralization in Chile began in the early 1980s and transferred to municipal governments the ownership of primary care facilities and decisions on human resources. Financing for health facilities came from a national fund that assigned resources according to a negotiated ceiling on fees for service charges. That fund was supplemented by local municipal government resources.

There are 334 municipalities in Chile, half with fewer than 17 111 inhabitants, while 68.6% of the total population lives in the largest 20% of the municipalities. The initially wide choice allowed to localities for human resources decisions was significantly restricted in 1995 by a national statute that reimposed some of the key limitations of the original national civil service policies, including salary ranges and career path provisions. In addition, the negotiated ceiling for municipal funding was replaced by a per capita formula imposed by the Ministry of Health.

In Bolivia in 1994 new legislation transferred the budget for supplies and investments for all sectors to the control of the 312 municipalities. The majority of those municipalities had not existed before and were created by the new law; this was especially true in rural areas. In addition, mechanisms were installed for popular participation of nongovernmental organizations, called territorial base organizations. Human resource management remained centralized. After it became apparent that local governments were not allocating sufficient resources to health, in 1996 the national Government earmarked 3% of the municipal transfers for the Maternal and Child Health Insurance Program, which specified a basic care package that was to be available without fees.

In general it can be concluded that decentralization in Chile and Bolivia has not brought a particularly wide range of choice to local decisionmakers. Choice may be allowed for one function, such as allocation of expenditures, but other restrictions, such as control of human resources or strict norms for specific programs, limit the actual range of choice. In some areas in both countries, initially wide choice was narrowed over time.

Figure 2 shows a decision-space map for Chilean municipalities in 1996. In contrast, a map for 1988 would have shown wider choice over human resources, as well as sources of revenue and allocation of expenditures. Between 1988 and 1996, a new statute on human resources was passed and a per capita formula was put into place to determine the source of revenue from central transfers.

The Bolivian decision-space maps would appear similar. For most functions the range of choice is narrow to moderate. Choice over expenditures was later limited by the imposition of the 3% earmark for the Maternal and Child Health Insurance Program.

Preliminary findings from these studies suggest that the current degrees of decentralization have not produced major changes in performance, as measured by available data on equity, efficiency, quality, and financial soundness. Decentralization has not been the panacea that advocates have claimed nor the disaster that detractors have suggested. Nevertheless, there have been some differences worth noting between the two countries.

In Chile the resources available for primary health care at the municipal level come mainly from three sources: central government transfers, an equalization fund of transfers from wealthier to poorer municipalities, and local revenues (8). Table 1 provides information according to the income decile of municipalities and shows the allocation from the central government and from local revenues; the figures for the local revenues include the reallocation from the equalization fund. The table shows that the central government contribution and the local contribution for primary health care for the lower nine deciles were relatively constant. Nevertheless, the richest municipalities allocated, from their own source revenues, four times as much per capita as did the other municipalities. This inequity may have reflected historical differences in spending that existed before decentralization. Decentralization appears not to have increased the level of inequality; indeed, the study found that the gap between wealthier and poorer localities declined over the 1991-1996 period.



The Chile research also found a significant correlation between the municipal expenditure per beneficiary and the level of municipal revenue (correlation of 0.527, P < 0.05). The local contribution varies with municipal income for the wealthiest decile while the central contribution is the same for all municipalities. There is no clear pattern on the part of the central authorities to direct expenditures toward the poorest municipalities.

The equalization fund in Chile, called the Municipal Common Fund (MCF), modified the inequality of spending for health and other municipal services. The MCF collected 60% of property tax revenues from all municipalities, and wealthier municipalities provided an additional contribution from industrial and commercial permit revenues. The moneys were then redistributed to municipalities according to a per capita allocation formula based on geographic and poverty indicators. Table 2 shows how municipal income and distribution were affected by the fund. The Gini coefficient, which measures income inequality on a scale of 0 (low inequality) to 1.0 (high inequality), showed an improvement in equity among the municipalities, going from .45 to .30.



In Chile, there was some evidence of "fiscal laziness." This effect was due to the physical presence or absence of centrally administered primary services in some municipalities, rather than the differences in funding sources. Some municipalities in Chile had primary care services provided from the hospitals managed by the Ministry of Health, while other municipalities were the sole providers of primary care services. Municipalities that were fully responsible for the primary care in their geographic area provided more per capita resources to their target population than did municipalities that were responsible for only a portion of the population in their geographic area, sharing responsibility for care with nationally controlled and financed facilities. In Bolivia the data available for comparisons among municipalities was not of sufficient quality to provide a comparative analysis with Chile. The limited data that was analyzed for Bolivia did not show any meaningful relationships among factors that might explain differences in municipal revenue, spending, and utilization rates for health care services, such as visits per capita (9). Case studies of 17 municipalities in Bolivia found that better performance along the dimensions of equality, utilization, and quality at the local level was the result of individual initiatives of particularly motivated officials. It was also found that local governments which followed the "new rules" of the decentralization policy had better performance than those that did not.

Municipalities in Bolivia without the leadership of motivated officials tended not to do as well. The importance of individual leadership may be due to the limited institutional capacity of local municipal governments, many of which were recently created. Since the Bolivian central Government is not as able as the one in Chile to enforce the rules of decentralization, these findings suggest that the institutional capacity of a central government may also condition the effectiveness of decentralization. The findings also suggest that in weak States an additional effort should be made to strengthen the support and monitoring activities in the process of decentralization.

There were little data available to evaluate the efficiency and quality of services in the two countries. Case study interviews suggest that the quality of services has improved in both Bolivia and Chile due to the increased resources available. It is not clear how much decentralization itself contributed to this improvement.

As for securing a financially sound health system, the results were mixed. In Bolivia, the ability of local governments to shift resources to other priorities resulted in a financial crisis for health care that was later partially addressed by earmarking funds for that sector. In Chile, where the local governments are unable to go into deficit, and where they added locally generated resources to fund health, the system seems more financially sound.



The health systems in Bolivia and Chile are among the most decentralized in Latin America. However, our analysis suggests that, even with decentralization, municipalities in both countries have a relatively restricted range of choice, and that even that range of choice has been reduced over time. We have also found no clear evidence that these limited degrees of decentralization have had a strong positive or negative effect on health system performance. These findings suggest that decentralization policies in Latin America have not really tested the wide ranges of choice that might lead to local innovations that could improve the health systems.

The findings, however, do lead to some specific recommendations for new decentralization policies. When some mechanisms allow local communities to choose between health and other priorities, as in Bolivia, local governments can sharply reduce health spending. In this case, the central authorities then have the option of earmarking intergovernmental transfers to health in order to restore health funding. The Chilean case also shows that equalization funds can result in a more equal distribution of local allocations to health.


Acknowledgments. This research was supported by United States Agency for International Development Cooperative Agreement DPE-5991A-00-1052-00. The authors are solely responsible for the content of this article.



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Descentralización de los sistemas de salud en América Latina

La descentralización constituye a menudo una parte importante de las políticas de reforma del sector de la salud. Sin embargo, ha habido pocos intentos de investigar comparativamente el grado de descentralización y los efectos de esta sobre la equidad de las asignaciones a la salud, de modo que desconocemos la mejor manera de poner en práctica esta reforma. En este estudio se utiliza un innovador análisis comparativo del "espacio de decisión" que se les concedió a las municipalidades en las reformas de la salud en Bolivia y Chile, dos países que han tenido varios años de experiencia en la puesta en práctica de la descentralización. El estudio reveló que a las autoridades locales se les concedió un espacio de decisión relativamente pequeño en funciones clave de los sistemas de salud. Asimismo, se verificó que las autoridades centrales a menudo reducen el espacio de decisión para dirigir más recursos a la salud o para restringir la elección local en cuestiones de recursos humanos. También se observó que se consiguieron asignaciones más equitativas de los fondos destinados a la salud, en Chile mediante un fondo común de igualación para las municipalidades y en Bolivia forzando la asignación a la salud de un porcentaje específico de las transferencias del gobierno central a las municipalidades.



1 Harvard School of Public Health, Boston, Massachusetts. Send correspondence to: Thomas Bossert, Harvard School of Public Health, 665 Huntington Avenue, I-1210, Boston, Massachusetts 02115, United States of America; e-mail:

2 Universidad de Chile, Santiago, Chile.

3 KPMG Bolivia, La Paz, Bolivia.

Organización Panamericana de la Salud Washington - Washington - United States