OOP(s)! – Struggling for Equity in Sri Lanka’s Health Sector amidst Rising Out of Pocket Expenditure

  • Sri Lankans spent Rs. 70 billion more out-of-pocket on healthcare in 2009 than 20 years ago
  • Poor are hit hardest by medicine shortages in state hospitals and lack of regulatory framework for drugs


The healthcare system in Sri Lanka is the metaphorical “feather in the nation’s cap”. The relationship between social factors that lead to health or chronic diseases has long been recognized in Sri Lanka’s public health care delivery system. This has led to the establishment of a network of 954 government health institutions, including central dispensaries in 276 areas designated by the Ministry of Health (MOH) with a health workforce of nearly 50,000, widely spread throughout the country providing free healthcare. The excellent progress in numerous healthcare indicators, such as maternal and infant mortality, and life expectancy, have – quite rightly – been acknowledged as being on account of the reach and potency of this system.

The Sri Lankan healthcare system is a combination of public health – the main driver enabling universal access which is financed by general revenue sources – and the private sector which is financed through fees levied for service arrangement. But the emerging trend is the rising Out Of Pocket (OOP) expenditure on health – which refers to the cost that is borne by the private consumer for the purchase of healthcare goods and services that are not covered by private insurance providers (or the national healthcare system). It is, by definition, a non-reimbursable expense. As per the Sri Lanka National Health Accounts (2009), household OOP expenditure on health in Sri Lanka rose from just Rs. 5.2 billion in 1990 to 76.1 billion in 2009. The share of OOP expenditure in Total Health Expenditure was 46% while the share of OOP expenditure in Private Health Expenditure was 89%.


The OOP expenditure on health in a household is mainly spent on the purchase of hospital care, professional services including physician services, prescription drugs and non- prescription drugs. This expenditure can have a direct impact on poverty because of its affect on the general consumption levels of poor households. For instance, it may reduce access to health care for individuals in a household because of an increase in the price of drugs or treatment.


Unraveling OOP expenditure

Expenditure on medicine in the period 1990 – 2009 (Figure 1) indicates that nearly 50% of OOP expenditure was consumed by medical goods dispensed to Out-Patients each year. In 2009, it was found that Rs. 32 billion was spent on the purchase of medicines out of the Rs 84 billion of Current Expenditure (constituting to just over 38%) by Private Sources. The data clearly portrays the fact that private expenditure on medicine has an indelible impact on household incomes. This is particularly critical in the context of the present volatile exchange rates, as 96% of medicinal drugs are imported.


Public Sector: Gaps in Healthcare Provision

In Sri Lanka, public expenditure allocation for medicine for patients through government health institutions was around Rs.15 billion in 2009. Around 60% of drug allocations were being distributed amongst National Hospitals, Teaching Hospitals, Provincial Hospitals, Base Hospitals, Districts Hospitals and other Specialized Hospitals. The remaining 40% was distributed through peripheral units such as Rural Hospitals and Central Dispensaries. Rural hospitals and peripheral units cover nearly one third of the population, and it has been regularly reported that these institutions are frequently experiencing shortages of essential medicines.


Therefore, although public sector hospitals are expected to provide drugs free-of-charge for patients, the reality is that most patients tend to purchase expensive drugs and sometimes even devices that are needed for surgeries (such as lenses needed for cataract operations, stents required in certain heart surgeries, valves and several other items) from private pharmacies. This leaves the patients with a choice of either having to forgo the medical interventions they need, or to bear higher OOP expenditure. This i suggests the fact that the main objective of having a public healthcare service, which is to protect a household from financial burden when they fall ill, has been severely hampered as a result of the shortages of essential drugs and equipment, especially in primary and secondary level facilities.


Private Sector: Private Hospitals, Drug Prescriptions, and Illegal Pharmacies


The private hospital industry remains highly concentrated in densely populated metropolitan localities and continues to portray oligopolistic market characteristics. In 1990, there were 44 private hospitals in operation, which increased to 112 in 2011 (excluding Estate hospitals and Co-operative hospitals). The number of Out-Patients treated in these hospitals increased from 419,000 in 1990 to 6 million in 2011,[1] and the number of In-Patients treated, increased from 65,000 in 1990 to 401,000 in 2011. Most of the private facilities, mainly In-Patient facilities, are patronized largely by higher income households who have the financial capacity and private insurance facilities to mitigate the impact of high medical expenses, when compared with poorer households. In comparison, Out-Patient facilities are used by all income groups, but mostly by higher and middle income groups. Constraints in access to medicines in public facilities (mainly for Out-Patients treatment), has forced poor households also to seek treatment from these private facilities despite the adverse impact to their household’s other expenditure levels.


Due to industry pressure certain doctors are in the habit of prescribing medicinal drugs marketed by selected manufacturers and importers when more affordable alternatives are available. In Sri Lanka, there were approximately 10,000 varieties of drugs imported (including generics) as at 2011 , compared with 2200 varieties imported in 2001. Taking in to consideration the volatile exchange rate regime present in the country, this makes the general cost of drugs in private pharmacies go up exponentially.


This situation has been further exacerbated with the influx of over 3000 private pharmacies that are in operation illegally without proper regulation. Unregulated markets such as these are often supplied with stolen and diverted drugs from government hospitals. In some instances, patients do not purchase the prescribed dosages of drugs due to their economic constraints. In other, more alarming instances, it has become common practice for a patient to get drugs directly from these pharmacists without a doctor’s prescription or with the use of out-dated prescriptions, which would cost less when taking in to account the cost of travelling and the consultation fee. This creates a very precarious situation for the health and well-being of the citizens of the country, who for reasons of unaffordability are forgoing proper medical care which could contribute to further, direr, complications in the future.




OOP expenditure on health hits particularly hard on the poor, whose ailments will either remain untreated or end up forcing them and their families into deeper poverty. To mitigate the economic and health impact on household, the most pressing need is to maintain an uninterrupted flow of life-saving essential drugs in government health facilities. Since the much anticipated Medicinal Drug Policy is still to come in to effect, the pharmaceutical retail market is primarily responsible for the increasing OOP expenditure on health. To mitigate the financial burden on health in these households, the only remedy available lies with the Ministry of Health.


Here are some key priorities for the MoH in mitigating the impacts of increasing OOP health expenditure:

  • Increasing financial allocation for medicines
  • The regularization of the distribution of medicine to the hospital network in order to avoid intermittent shortages
  • Enhancing the production of the allotted variety of medicines at the State Pharmaceutical Manufacturing Corporation
  • Streamlining the distribution network of the State Pharmaceutical Corporation and the Implementation of the Medicinal Drug Policy
  • Offering equitable access with a pricing mechanism that ensures affordability through the introduction of legislation requiring the prescription of generics and allowing cost-effective generic substitutions to be freely available.


For more information on the latest Health Expenditures and related data, see “Sri Lanka National Health Accounts: 2005-2009” published by the IPS http://www.ips.lk/publications/latest_publications.html

[1]IPS Census of Private ,Co-operative, and Estate Hospitals 2011