Decisions of resource allocation carry important implications for equity and efficiency.It is clear that in attempting to reach the millennium development goals (MDG) for health, the government health expenditures will increase, while the budgetary constraints in raising the required resources would continue to remain particularly for the low-income countries. The targets of MDG could be achieved through a pattern that benefits primarily the better-off, while largely bypassing the poor. This is mainly due to the incentive that exists to use increased available resources in tertiary hospitals, where the utilisation trends tend to favour the rich. There is also evidence from studies focussing on the incidence of benefit in public spending on health that the richest 20 per cent of the population accessed primary care, as well as higher-level care facilities, more than the poorest. This therefore implies that shifting resources to primary services alone will not necessarily increase their use by the poor.
Further, as the issues of public accountability and efficiency are low in publicly funded hospitals, it is important to consider alternative ways of providing the healthcare services. An important question that arises in this context is whether it is necessary that the services are produced by the state (i.e. through state funded/run hospitals and dispensaries) or whether the task of providing the health services should be de-linked from that of its financing. The latter brings to consideration the issue of purchasing the services from other non-governmental providers. In this context, purchasing which is also referred to as financing of the supply side, refers to the numerous arrangements used to pay the different medical care providers. It involves the consideration of alternatives like decentralisation, contracting, developing efficiency-based provider payment incentives and systems, etc.
Resource allocation and purchasing together therefore relates to the issues of: what to buy, how and from whom to buy, for whom to buy, how to pay, and at what price? These questions together focus on aspects of allocating the limited resources so as to maximise the health outcomes. The procedures of ‘resource allocation and purchasing’ have important implications for cost, access, quality, and consumer satisfaction. Efficiency gains (both technical and allocative) from purchasing arrangements provide better value for money thereby becoming a means of obtaining additional ‘financing’ for the health system.