This report aims to contribute to the reform process of the health financing system in Nepal to ensure social health protection for Nepalese citizens. It has a particular focus on purchasing mechanisms and makes recommendations on how to move towards better utilisation of resources and strategic purchasing. The analysis follows the World Health Organization’s three health financing functions – revenue collection, risk pooling and purchasing – leading to the following assessment of the key challenges:

• The Government of Nepal has limited capacity to generate more resources on a substantial scale.
• The health financing system has limited ability to address inequities and identify and protect the poor.
• There are inefficiencies in the system due to fragmented resource allocation.
• The Government of Nepal has limited power to negotiate the price and quality of services due to the practice of passive purchasing.