Decentralisation in Indonesia: lessons from cost recovery rate of district hospitals

In 1991 Indonesia began a process of decentralisation in the health sector which affects not only primary health care but also public hospitals. The public hospitals have been given greater authority to manage their own personnel, finance and procurement, and are allowed to operate commercial sections in addition to offering public services. The public services are subsidised by the government, yet patients still pay certain amount of fees. The main objective of health sector decentralisation is to increase the ability of public hospitals to cover their costs and to reduce government subsidies. This study investigates whether this objective is being achieved by looking into the cost recovery rates of public hospitals in districts of East Java. We examine five service units (inpatient, outpatient, operating room, laboratory, and radiology) in three public hospitals. We find that after twenty years of decentralisation, district hospitals still depend on government subsidies, demonstrated by the fact that the cost recovery rates of most service units are less than one. The commercial sections fail to play their role as revenue generator as they are still subsidised by the government. We also find the bulk of costs are made up of staff salaries and incentives in all units except radiology. As this study constitutes exploratory research, further investigation is needed to find out the reasons for these low cost recovery rates.