Performance-based financing (PBF) is a method of providing cash or non-monetary benefits for measurable actions or achievement of defined performance targets. In theory, PBF can strengthen supply chains by linking performance to rewards. PBF is often used in commercial supply chains and is increasingly being used to improve health care service delivery worldwide.
However, until now, only limited applications have been used in public-sector supply chains. This is true for interventions aimed at supply chain professionals and institutions, as well as for the supply chain-related performance of general health care workers. The need to protect against perverse incentives that could harm patients further complicates the implementation of PBF interventions in public health settings.
To learn more about the PBF work being done in supply chain management in the public-health sector around the world, the USAID | DELIVER PROJECT reviewed the current literature and compiled a compendium of real-life examples and experiences of how PBF has been applied. This review focused on PBF incentives in the public sector.
The USAID | DELIVER PROJECT conducted a desk-based literature review to collect examples of PBF schemes in public-sector supply chain management. The review searched online bibliographies for published and unpublished studies on PBF schemes that included supply chain indicators. The project also followed up with online references to PBF schemes related to health care and examined them to determine if they had included any supply chain-specific indicators.
Due to the limited number of documented examples, the project supplemented the literature review with semi-structured interviews of key contacts with knowledge of PBF in international public-sector health supply chains. The contacts provided context and documentation for nine examples of PBF when applied in this type of setting. Programs were identified in Africa, Asia, and Latin America, and they were supported by a variety of donors, including the World Bank, United Nations Populations Fund (UNFPA), Asian Development Bank (ADB), Nordic Development Fund (NDF), U.S. Agency for International Development (USAID), and the Bill and Melinda Gates Foundation.
One important element of performance-based financing for supply chains is identifying performance-related problems and aligning incentives along the entire supply chain. The specific context that gives rise to the introduction of PBF varies, but the bottlenecks PBF is being used to redress can be grouped into two areas: problems in logistics information and problems in commodity availability.
In Nicaragua, a nationwide effort is underway to improve logistics management information systems (LMIS), improve how the LMISs measure stock status, and increase drug availability. The country scores each of its 17 district health management units on 20 indicators, which pertain to the operation of the automated LMIS and the use of logistics data. High-scoring units receive small rewards, including computer and other equipment.
In Ghana, the Focus Region Health Project (FRHP) set up a competition between regions to ameliorate problems in data quality and accuracy. The project measured timely, accurate submission of data, as well as trainings on the reporting system, and awarded equipment to the region that performed best in these areas.
Rwanda also had problems with the timely submission of quality reports. The Rwanda Community Performance-based Financing Program sought to improve this situation through pay-for-reporting incentives that were given directly to cooperatives of community health workers to benefit the individual worker.
In Haiti, Liberia, and Afghanistan, the health care systems are weak due to poverty, conflict, and natural disasters. Nongovernmental organizations (NGOs) provide a substantial portion of health care services in these countries. With donor support, these countries have used performance-based contracting with NGOs for their provision of basic health services, including family planning.
In each country, drug and commodity availability is measured at the facility level, and it is only a small part of the indicators assessed. In Liberia and Afghanistan, NGOs are able to earn a bonus based on adequate performance. In Haiti, NGOs with government contracts have had part of their historical budget withheld. If they reach pre-established targets for service delivery, NGOs can earn back the withheld part of their budget and can earn additional bonuses.
Rewards within PBF can be both monetary and non-monetary. While PBF is often called pay-for-performance, many non-monetary ways can be used to compensate people for their work, with the hope that the results will improve. As examples in Ghana and Nicaragua showed, the incentive in those countries was new equipment for the health region. Other non-monetary incentives can include recognition or praise for work well done.
PBF for a supply chain is usually a subset of a larger program. In the programs studied, supply chain indicators were part of a larger PBF scheme, usually aimed at improved overall health outcomes. This is also reflected in the level where the interventions are aimed. Despite having different contextual issues and bottlenecks, nearly all examples in the review are of programs targeting the facility level of the supply chain.