Transforming Indonesia’s Primary Care: Tackling PFM Fragmentation for Better Health Financing

Indonesia Tackles Healthcare Funding Fragmentation for Improved Primary Care

Jakarta, Indonesia – Indonesia is undertaking significant reforms to bolster it’s primary healthcare system, addressing long-standing issues of fragmented financial management that have hindered the effective allocation of resources. Despite increased investment in public health, inefficiencies in how funds are distributed and managed have limited the impact of those expenditures, especially at the local level.

New Regulations Drive Reform

Recent legislation, specifically Law No. 17 of 2023 on Health, and subsequent implementing regulations issued by the Minister of Health, aim to streamline the healthcare financing landscape. These changes seek to consolidate funding streams and create a more unified system for resource allocation and oversight. However, challenges persist with funding continuing to originate from multiple sources, each with its own set of rules and procedures.

Identifying the Bottlenecks

A comprehensive review conducted by the World Health Organization (WHO), in collaboration with Indonesian authorities and academic institutions, pinpointed key weaknesses in the current Public Financial Management (PFM) system. The analysis revealed inconsistencies in budgeting, delays in fund disbursement, limited adaptability for local healthcare facilities, and inadequate integration of financial data with service delivery tracking.

Key PFM Challenges in Indonesia

challenge	Description
Fragmented Financing	Multiple funding sources with differing rules.
Inconsistent Costing	Lack of standardized costing and allocation methods.
Delayed Disbursement	Funds frequently enough arrive late, hindering service delivery.
Limited Flexibility	Healthcare facilities have restricted control over fund utilization.
Data Integration	Weak links between financial data and service delivery outcomes.

The Role of ‘Puskesmas‘ and Local Autonomy

Central to the reform effort is empowering ‘puskesmas’ – Indonesia’s primary healthcare facilities. A particularly promising pathway to betterment lies in granting more facilities ‘Badan Layanan Umum Daerah’ (BLUD) status. This designation affords them greater autonomy in managing their finances and responding to local healthcare needs while maintaining accountability thru established governance structures. According to Prastuti Soewondo, a senior advisor to the Indonesian Minister of Health, BLUD status “expands the decision space for puskesmas… while maintaining accountability.”

International Collaboration and best Practices

Indonesia actively participated in the 7th Meeting of the Montreux Collaborative on Fiscal Space, Public financial Management and Health Financing, held in Geneva in December 2025. The meeting fostered discussions on aligning financial management with primary healthcare goals, promoting decentralized decision-making, and enhancing accountability mechanisms. This engagement underscores Indonesia’s commitment to learning from international best practices. A 2024 report by the OECD highlights the importance of integrated PFM systems for achieving global health coverage.

Moving Forward: Strengthening PFM for Universal Health Coverage

Experts agree that a robust Public Financial Management system is crucial for translating increased health spending into tangible improvements in primary care access and quality. By addressing existing bottlenecks and integrating reforms within broader health system transformations, Indonesia aims to achieve greater efficiency, responsiveness, and progress towards universal health coverage. The WHO will continue to provide support through capacity building,knowledge sharing,and evidence-based policy guidance.

Do you believe greater local autonomy is the key to improving healthcare delivery in Indonesia? What othre strategies could be implemented to address these financial management challenges?

Disclaimer: This article provides facts regarding healthcare system reforms and does not constitute medical or financial advice.

What are the main strategies to reduce PFM fragmentation in Indonesia’s primary care?

Transforming Indonesia’s Primary Care: Tackling PFM Fragmentation for Better Health Financing

Indonesia’s journey towards global health coverage (UHC) through Jaminan Kesehatan Nasional (JKN) is enterprising, but its success hinges on a robust and efficient primary care system. Currently, notable fragmentation in Public financial Management (PFM) hinders optimal health financing and service delivery. this article explores the key challenges and potential solutions for transforming Indonesia’s primary care landscape.

Understanding the PFM Fragmentation in Indonesian Healthcare

The current system is characterized by a complex interplay of funding flows, often lacking transparency and coordination. Several factors contribute to this fragmentation:

* Decentralization Challenges: While decentralization aims to improve local responsiveness, it has also led to inconsistencies in resource allocation and implementation across different regions (Kabupaten/Kota).Variations in local capacity and priorities exacerbate these issues.

* Multiple Funding Sources: Primary care is funded through a mix of sources – central government allocations (Dana Alokasi Umum/DAU and Dana Alokasi Khusus/DAK), regional government budgets (APBD), JKN contributions, and out-of-pocket payments. This creates complexities in tracking and managing funds effectively.

* Weak Budgeting and Accounting Systems: Limited capacity in budgeting, accounting, and financial reporting at the primary care level hampers accurate monitoring of expenditures and performance.

* Duplication of Efforts: Overlapping programs and initiatives across different ministries and agencies lead to inefficiencies and wasted resources. For example, both the Ministry of Health and local governments often implement similar health promotion activities.

* Limited Integration of Vertical Programs: Vertical programs (focused on specific diseases like tuberculosis or HIV/AIDS) often operate independently from the broader primary care system, creating parallel structures and hindering complete care.

The Impact of Fragmentation on Health Financing & Service Delivery

PFM fragmentation directly impacts the effectiveness of health financing and the quality of primary care services:

* Reduced Efficiency: Duplication and lack of coordination lead to higher costs and lower value for money.

* Equity Concerns: Disparities in resource allocation across regions exacerbate health inequities, particularly for vulnerable populations.

* Weakened Primary Care Function: Insufficient and unpredictable funding undermines the ability of primary care facilities (Puskesmas) to provide essential services, including preventative care, health promotion, and management of chronic diseases.

* Increased Out-of-pocket Expenditure: when primary care is underfunded, individuals are more likely to bypass it and seek care directly from hospitals, leading to higher out-of-pocket expenses.

* Hindered JKN Sustainability: Inefficient use of JKN funds due to fragmentation threatens the long-term financial sustainability of the national health insurance scheme.

Strategies for Transforming Primary Care PFM

Addressing PFM fragmentation requires a multi-pronged approach focused on strengthening governance, improving financial management, and enhancing coordination.

1. Strengthening Fiscal Decentralization & Equalization Grants:

* Formula-Based Allocations: Refine the DAU and DAK allocation formulas to better reflect health needs and local capacity.Incorporate indicators related to primary care infrastructure, human resources, and service utilization.

* Performance-Based Grants: Introduce performance-based grants to incentivize regions to improve primary care performance based on pre-defined indicators (e.g., immunization coverage, maternal mortality rates).

* Capacity Building: Invest in strengthening the financial management capacity of local governments, including training on budgeting, accounting, and procurement.

2. Improving Budgeting and Financial Management at the Primary Care Level:

* Line-Item Budgeting: Implement line-item budgeting at the Puskesmas level to enhance transparency and accountability.

* Strengthened Financial Reporting: Develop standardized financial reporting templates and systems to facilitate accurate monitoring of expenditures.

* Internal Audit Mechanisms: Establish robust internal audit mechanisms to detect and prevent financial irregularities.

* Digitalization of Financial Management: Leverage digital technologies to streamline financial processes,improve data accuracy,and enhance transparency.

3. Enhancing Coordination and Integration:

* National Primary Health Care Strategy: Develop a comprehensive national primary health care strategy that outlines clear roles and responsibilities for all stakeholders.

* Inter-Agency Coordination Mechanisms: Establish formal coordination mechanisms between the Ministry of Health, Ministry of Finance, and other relevant agencies.

* Integration of Vertical Programs: Gradually integrate vertical programs into the primary care system, ensuring that they are aligned with national health priorities and contribute to comprehensive care.

* Strengthening Referral Systems: Improve referral systems between primary care facilities, hospitals, and specialist clinics to ensure continuity of care.

4. Leveraging Technology for Improved PFM:

* e-Health Systems: Implement integrated e-health systems that link patient records, financial transactions, and service delivery data.

* Real-Time data Monitoring: Utilize real-time data monitoring tools to track key performance indicators and identify areas for improvement.

* Digital Payment Systems: promote the use of digital payment systems to reduce transaction costs and improve transparency.

Case study: The success of Kabupaten Sleman in Yogyakarta

Kabupaten Sleman in Yogyakarta provides a positive example of improved PFM in primary care. Through a combination of strong local leadership, effective planning, and clear financial management, Sleman has achieved significant improvements in health indicators. Key strategies included:

* Dedicated health budget: