Supply-side subsidies targeting

Supply-side subsidies, which cover some or all of the costs of health services inputs (infrastructure, staff, drugs, equipment, nonmedical consumables), provide litde incentive to attract patients or increase productivity. As a result, despite relatively low wages, publicly operated services have remarkably high unit costs, and utilization rates are often low. The absence of targeting (restricting benefits to a certain subset of the population) gready dilutes the impact of public expenditure on health care. Middle-class people pay less than they can afford, while the poor often pay more. 

Supply-side subsidies are usually relatively simple to introduce and inexpensive to administer, and they can provide benefits to broad population groups. They are appropriate where the subsidized good or service can be used only by the target groups. Examples include immunizations drugs used to treat communicable diseases, such as tuberculosis, and health facility infrastructure and staff costs in poor areas. 

Difficulty targeting. There is no guarantee that supply-side subsidies benefit those for whom they are intended. One way of restricting benefits to target groups is to subsidize the providers they use, but target populations may not use the facilities that receive assistance. Another option is to subsidize inputs that can be used only for specific health... 

The World Development Report 2004 reviews traditional approaches to public service delivery and discusses how they have often failed the poor. Whether in health, education, or infrastructure, supply-side subsidy strategies to fund inputs—such as staff costs, equipment, and buildings used in delivery—have not improved the access to quality services among the poor. An important question remains for developing countries and the international development community on how to deliver and target public subsidies in ways that promote efficiency and innovation, increase accountability for performance, and leverage public resources with private participation and financing. 

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