How Nepal's federal health system really works: municipal planning, budgeting and service delivery

For five years I was the chief of a municipal health department — first in Diktel Rupakot Majhuwagadhi Municipality in Khotang, then in Rupa Rural Municipality in Kaski. Both were part of Nepal's first federal tenure, which means both were places where a national constitutional idea had to be turned into an immunisation session, a birthing centre roster, an ambulance arrangement and a budget line. This article is the explanation I wish had existed then: what the law actually assigns to whom, how the money moves, and where implementation reliably fails.

1. The constitutional division of health authority

The 2015 Constitution replaced Nepal's centrally-run health administration with three orders of government: one federal government, seven provinces and 753 local governments. Its schedules distribute exclusive and concurrent powers, and health appears in several of them at once — basic health and sanitation sits with local governments, health services and hospital management appear at provincial level, and national health policy, quality standards and regulation remain federal. Peer-reviewed analyses of the transition describe this as devolution executed faster than the supporting institutions could be built, which is exactly how it felt from a municipal office in 2018.

The practical consequence is that no single tier can deliver a functioning health service alone. A municipality owns the health post but not the specialist referral hospital; a province owns hospital management but not the frontline workforce contract; the federal government sets standards and runs vertical programmes such as immunisation logistics but no longer commands the staff who execute them. Every serious municipal health plan is therefore a negotiation document as much as a technical one.

761

Governments now share health responsibility: 1 federal, 7 provincial, 753 local

2018

Public Health Service Act enacted, making basic and emergency care a legal entitlement

2020

Public Health Service Regulations published, setting operational service standards

2. The legal mandate local governments actually carry

The Public Health Service Act, 2075 (2018) is the instrument that converts a constitutional right into an enforceable duty. It obliges the state — in practice, largely local governments — to provide basic health services free of charge, and to provide emergency health services without prior payment. The Public Health Service Regulations published in the Nepal Gazette in September 2020 then define the operational shape: the basic service package, referral obligations, and the standards facilities are expected to meet.

Two things follow that are often missed. First, 'free' is a financing statement, not a cost statement: the municipality absorbs the cost of commodities, staff and utilities that were previously invisible in a centrally-supplied model. Second, 'emergency without prior payment' creates a legal exposure for facilities that have no functioning triage, no stabilisation capacity and no referral agreement — which is why emergency care readiness is not a hospital-only agenda.

• Basic health care services (BHCS): free at point of use, delivered mainly through health posts, basic health service centres and urban health centres under local government management.
• Emergency services: treatment must not be withheld pending payment, which requires pre-agreed referral, transport and cost-recovery arrangements.
• Quality and standards: set federally, monitored provincially, but produced locally — the burden of compliance lands on the municipal health department.
• Public health functions: surveillance, outbreak response, MPDSR and health promotion sit with local government, supported by federal divisions.

3. The municipal planning and budgeting cycle, step by step

The single highest-leverage document in Nepali local health governance is the annual municipal health plan that feeds the local budget. Work by HERD International on strengthening local planning and budgeting for basic health care services documents a seven-step cycle, and it maps closely onto how a competent palika actually runs its year. Below is that cycle described the way a health chief experiences it.

1. 01Situation analysis: pull the previous year's HMIS/DHIS2 performance, facility readiness data, disease trends and unspent budget, and identify the two or three gaps that genuinely constrain outcomes.
2. 02Ward-level consultation: settlement and ward assemblies generate demands. Health rarely wins on volume of demand, so this is where a health chief must translate needs into fundable, specific activities.
3. 03Costed activity design: each proposed activity gets an output, a responsible person, a unit cost and a quarter. Uncosted good intentions are removed at the budget ceiling stage every single year.
4. 04Prioritisation against ceilings: the health department negotiates within the municipal ceiling and against the conditional grants already earmarked for federal programmes.
5. 05Approval through the municipal assembly: the plan becomes a legal appropriation, published in the annual programme and budget book.
6. 06Implementation and procurement: the step where most municipal health plans stall, because procurement capacity, not ambition, becomes the binding constraint.
7. 07Review, audit and public hearing: quarterly progress review, social audit at facility level, and a documented handover into the next situation analysis.

The federal transition did not make health planning harder. It made health planning visible — and therefore contestable — for the first time.

4. Aligning with the Nepal Health Sector Strategic Plan 2023-2030

The Nepal Health Sector Strategic Plan (NHSSP) 2023-2030, endorsed by the Government of Nepal and published by the Ministry of Health and Population, is the current sector frame, and its progress is monitored through the National Joint Annual Review and the Progress of Health and Population Sector reports. For a municipality this is not a documentary formality: the strategic plan's outcome areas define the language in which federal conditional grants, provincial support and partner projects are written. A municipal plan whose activities can be mapped onto NHSSP outcomes is a municipal plan that can attract co-financing.

5. Five failure points every reform has to design around

Analyses of Nepal's federal transition across the WHO health system building blocks converge on a consistent set of weaknesses, and they match what municipal managers experience.

• Workforce adjustment: staff adjustment and deputation left many municipalities carrying vacancies they cannot fill, because recruitment authority, pay scale and career path sit in different tiers.
• Procurement and financial management: annual plans are often technically sound but executed late, producing the familiar fourth-quarter spending spike and low-quality expenditure.
• The thin provincial layer: provinces were expected to supervise and support, but health directorates were built last and remain the weakest link between federal standards and local delivery.
• Data used for reporting, not decisions: HMIS/DHIS2 data flows upward reliably and is analysed locally rarely — the specific problem I address in the data-quality article on this site.
• Fragmented accountability for quality: when three tiers share responsibility for a clinical outcome, no single tier owns it unless the municipal plan explicitly assigns it.

6. A practical checklist for the next planning cycle

1. 01Publish a one-page facility scorecard per health post before the ward assemblies, so demand is shaped by evidence rather than by proximity to influence.
2. 02Cost every activity to the unit, and attach the procurement route and quarter at design stage rather than after approval.
3. 03Write two or three activities specifically in NHSSP outcome language to open the door to conditional grants and partner co-financing.
4. 04Put emergency and referral capacity in the plan explicitly — the 2018 Act creates an obligation you cannot meet with goodwill alone.
5. 05Fix one data-quality problem per year (completeness, timeliness, or internal consistency of a single priority indicator) and document the before-and-after.
6. 06Close the loop publicly: a social audit that reports what was promised, what was spent and what changed is the cheapest accountability mechanism a palika has.