Health Financing Reforms in EU Accession Countries: Salient Features and Lessons Learned Marzena Kulis The World Bank Gastein, September 2002 Based on „Expenditure Policies Towards EU Accession” Study team led by Bernard Funck, Health section written by Mukesh Chawla

Outline Legacy The inherited system and attendant issues Motivation for reforms Decentralization, consumer choice, debt management, etc, Health financing reforms Resource mobilization and resource allocation Experience Impact on efficiency and availability of resources Lessons Learned Design and implementation issues

Legacy: Financing and Delivery Siemaszko model of health financing and organization Publicly-funded health systems Budgetary support for network of hospitals and clinics Historical allocations, with minor adjustments Providers typically state employees Compensation typically salary-based Universal access and broad coverage Limited choice

Legacy: Attendant Issues Low levels of technical and allocative efficiency Underutilization of capacity in some areas and under-supply in others Overstaffing Low levels of clinical quality Shortage of drugs and medical supplies Widespread dissatisfaction with the health system among patients and providers

Legacy: Attendant Issues (continued) Poor incentives for providers to develop fiscal and strategic planning functions Salary based compensation undermined the importance of effort and productivity Decline in resources following disruption in economic activity and shrinking of tax base during transition Pressure of inflation, technology, and rising consumer expectations On the positive side, financial risk protection and equity maintained

Motivation for Health Reforms Accompanied or followed broader structural changes in governance, authority relationships and ownership resulting from a combination of social, political and ideological forces Synonymous in spirit with rapid dismantling of the state apparatus and with restoration of property and ownership rights Ideological move towards decentralization, privatization of public sector services, and greater choice for people

Motivation for Health Reforms (continued) Reforms in health financing to meet with the challenge of resource mobilization and mounting debts Reforms necessary to improve efficiency and effectiveness of utilization of resources Reforms to address public dissatisfaction among patients Reforms in production, delivery and management to improve quality of health care services

Health Financing Reforms: Resource Mobilization Shift from general tax-supported system to payroll-based insurance system as the predominant source of health financing Emergence of formal out-of-pocket payments as an important source of financing General tax revenue support for health systems on the decline

Social Insurance and Taxation in Public Spending on Health Year Social InsuranceGeneral Taxation Bulgaria Czech Republic Estonia Hungary Slovakia Slovenia Latvia Lithuania Poland Romania

Characteristics of Social Insurance Year introduced Salaried (employer: employee)Self-employed Bulgaria19996% of payroll (3:3)6% Czech Republic % (10:3.5)13.5% of 35% of net pretax income Estonia % (13:0)13% Hungary % (11:3) 14% plus hypothecated tax of US$170 per person Slovakia % (10:3.7)13.7% Slovenia % Latvia % of personal income tax 28.4% Lithuania19973% of payroll + 1/3 of income tax 3% Poland % Romania199914% (7:7)7%

Health Financing Reforms: Resource Allocation Significant changes in provider payment General direction away from the traditional salary-based compensation Biggest changes in reimbursing physicians for primary care, shifting toward capitation-based payments Most countries using fee-for-service payments for outpatient specialist care Budgetary systems retained for inpatient care in most countries; some move toward case-mix based systems Estonia, Slovenia and Latvia compensate hospitals on a per-day basis

Paying Health Care Providers Primary Care Outpatient Specialist Care Inpatient Care Bulgaria Capitation paymentSalaryBudget Czech RepublicCapitation paymentCapped fee-for-serviceBudget Estonia Mix of capitation payment and fee-for-service Capped fee-for-servicePer-diem payment HungaryCapitation paymentCapped fee-for-service (point system) DRG (758 categories) SlovakiaCapitation paymentSalary/fee-for-serviceBudget SloveniaCapitation paymentSalaryPer-diem payment LatviaMix of capitation payment and fee-for-service Salary + point systemPer-diem payment LithuaniaSalary/Capitation paymentSalary/fee-for-serviceCase-based payments PolandCapitation paymentCapped fee-for-servicePer admission RomaniaMix of capitation payment and fee-for-service Capped fee-for-serviceGlobal budget

The Reform Experience Social health insurance emerging as the most significant source of revenue Total health expenditure per capita increased in almost all the countries (Bulgaria only exception) Estonia recorded the largest increase, from less than 2% of GDP in 1990 to 6.4% in 1999 Out-of-pocket expenditures range from a low of 4.9% in Bulgaria to 39.4% in Latvia, most countries averaging between 20% and 30%

Health Care Expenditures,

The Reform Experience (continued) On the positive side: Significant reductions in the number of hospital beds Reduction in number of physicians in Latvia and Estonia Status Quo: However, service provision did not shift from relatively expensive acute hospital sector to lower levels of care And on the negative side: Hospital admission rates increased while outpatient visits fell No major change on the debt position

Hospital Beds, Physicians and Utilization Patterns

Lessons Learned Health financing reforms need to address several fundamental and systemic issues The constitutional guarantee of free health care in most countries under review creates a sense of entitlement and create resistance to health insurance schemes that explicitly ration access to health services Important to focus on design and capacity issues Presence of multiple health insurance companies do not guarantee competition or incentives to contain costs

Lessons Learned Insurance contribution rates and health service prices need to be carefully and scientifically calculated Insurance companies need to be selective in contracting Need for strong incentives for providers to better manage facilities Important to collect good information on inputs, costs and health service outcomes

Conclusion Many positive achievements recorded in the years following the transition Reforms have generally done well in safeguarding allocations to the health sector Spending on health as percent of GDP has increased in almost all EU accession countries However, health reforms have not performed well on improving efficiency and containing debts Most EU accession countries need to focus on the challenge of resource allocation and identify new ways of purchasing and paying for health services.