Health Financing Reforms in EU Accession Countries: Salient Features and Lessons Learned

Marzena KulisThe World Bank

Gastein, September 2002

Based on „Expenditure Policies Towards EU Accession”Study team led by Bernard Funck,

Health section written by Mukesh Chawla

OutlineLegacy

The inherited system and attendant issuesMotivation for reforms

Decentralization, consumer choice, debt management, etc,Health financing reforms

Resource mobilization and resource allocationExperience

Impact on efficiency and availability of resourcesLessons Learned

Design and implementation issues

Legacy: Financing and DeliverySiemaszko model of health financing and organizationPublicly-funded health systemsBudgetary support for network of hospitals and clinicsHistorical allocations, with minor adjustmentsProviders typically state employees Compensation typically salary-basedUniversal access and broad coverageLimited choice

Legacy: Attendant IssuesLow levels of technical and allocative efficiencyUnderutilization of capacity in some areas and under-supply in othersOverstaffingLow levels of clinical qualityShortage of drugs and medical suppliesWidespread dissatisfaction with the health system among patients and providers

Legacy: Attendant Issues (continued)Poor incentives for providers to develop fiscal and strategic planning functionsSalary based compensation undermined the importance of effort and productivityDecline in resources following disruption in economic activity and shrinking of tax base during transitionPressure of inflation, technology, and rising consumer expectationsOn the positive side, financial risk protection and equity maintained

Motivation for Health ReformsAccompanied or followed broader structural changes in governance, authority relationships and ownership resulting from a combination of social, political and ideological forcesSynonymous in spirit with rapid dismantling of the state apparatus and with restoration of property and ownership rightsIdeological 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 debtsReforms necessary to improve efficiency and effectiveness of utilization of resourcesReforms to address public dissatisfaction among patientsReforms 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 financingEmergence of formal out-of-pocket payments as an important source of financingGeneral tax revenue support for health systems on the decline

Social Insurance and Taxation in Public Spending on Health

 Year Social Insurance General Taxation

Bulgaria 2001 40.1 59.9

Czech Republic 1999 89.5 10.5

Estonia 1999 88.3 11.7

Hungary 1996 85.6 14.4

Slovakia 1999 74.8 25.2

Slovenia 1999 96.2 3.8

Latvia 2001 0 100

Lithuania 2000 74.7 25.3

Poland 1999 82.8 17.2

Romania 2001 87.3 12.7

Characteristics of Social Insurance  Year

introducedSalaried

(employer: employee) Self-employed

Bulgaria 1999 6% of payroll (3:3) 6%

Czech Republic 

1993 13.5% (10:3.5) 13.5% of 35% of net pretax income

Estonia 1992  13% (13:0) 13%

Hungary  1990 14% (11:3)  14% plus hypothecated tax of US$170 per person

Slovakia 1994 13.7% (10:3.7) 13.7%

Slovenia 1993 13.25% 13.25%

Latvia 1998 28.4% of personal income tax

28.4%

Lithuania 1997 3% of payroll + 1/3 of income tax

3%

Poland 1999 7.75% 7.75%

Romania 1999 14% (7:7) 7%

Health Financing Reforms: Resource Allocation

Significant changes in provider paymentGeneral direction away from the traditional salary-based compensationBiggest changes in reimbursing physicians for primary care, shifting toward capitation-based paymentsMost countries using fee-for-service payments for outpatient specialist careBudgetary systems retained for inpatient care in most countries; some move toward case-mix based systemsEstonia, Slovenia and Latvia compensate hospitals on a per-day basis

Paying Health Care Providers  Primary Care Outpatient Specialist

CareInpatient

Care Bulgaria Capitation payment Salary Budget

Czech Republic Capitation payment Capped fee-for-service Budget

Estonia Mix of capitation payment and fee-for-service

Capped fee-for-service Per-diem payment

Hungary Capitation payment Capped fee-for-service (point system)

DRG (758 categories)

Slovakia Capitation payment Salary/fee-for-service Budget

Slovenia Capitation payment Salary Per-diem payment

Latvia Mix of capitation payment and fee-for-service

Salary + point system Per-diem payment

Lithuania Salary/Capitation payment Salary/fee-for-service Case-based payments

Poland Capitation payment Capped fee-for-service Per admission

Romania Mix of capitation payment and fee-for-service

Capped fee-for-service Global budget

The Reform ExperienceSocial health insurance emerging as the most significant source of revenueTotal 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 1999Out-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, 1990-99

Real GDP per capita (US$, 1995 prices)

Percentage Change in real

GDP (1995)

Health Care Expenditure per capita (US$, 1999)

Total Health Expenditure as % of GDP

2000 2000-1990 Total % Public % Private 1990 1999

Bulgaria 1,492 -13.05% 62 95.1 4.9 4.1 4.1 Czech Republic 5,258 -0.23% 380 91.6 8.5 5.4 7.1

Estonia 4,228 -5.77% 243 79.7 20.3 1.9 6.4 Hungary 5,444 12.09% 318 76.5 23.5 5.7 6.8 Slovakia 4,160 2.77% 285 79.2 20.8 5.4 7.2 Slovenia 11,681 20.93% 746 88.0 12.0 5.6 7.5 Latvia 2,549 -31.16% 166 60.6 39.4 2.5 6.6

Lithuania 2,043 -31.58% 183 76.2 23.8 3 6.3 Poland 3,682 41.40% 248 75.4 24.6 4.6 6.2

Romania 1,312 -14.30% 86 71.7 28.3 2.7 5.3

The Reform Experience (continued)On the positive side:

Significant reductions in the number of hospital bedsReduction 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 fellNo major change on the debt position

Hospital Beds, Physicians and Utilization Patterns

Hospital beds per 1,000

(% change, 1990-99)

Physicians per 100,000 (% change,

1990-99)

Hospital admission rates

per 100 (% change,

1990-99)

Outpatient consultations

per person (% change, 1990-99)

Bulgaria -23.39% 8.52% -16.82% -18.18% Czech Republic -22.44% 11.81% 7.07% 4.32% Estonia -37.94% -12.03% 6.36% -20.25% Hungary -14.74% 12.62% 16.47% 25.81% Slovakia -9.50% 18.46% 17.99% 20.37% Slovenia -8.11% 4.88% 5.99% 13.23% Latvia -36.75% -23.84% -1.69% -39.51% Lithuania -24.60% -1.75% 31.42% -15.38% Poland -22.73% 5.61% 30.19% -10.00% Romania -18.05% 6.11% 3.08% -22.89%

Lessons LearnedHealth financing reforms need to address several fundamental and systemic issuesThe 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 servicesImportant to focus on design and capacity issuesPresence of multiple health insurance companies do not guarantee competition or incentives to contain costs

Lessons LearnedInsurance contribution rates and health service prices need to be carefully and scientifically calculatedInsurance companies need to be selective in contractingNeed for strong incentives for providers to better manage facilitiesImportant to collect good information on inputs, costs and health service outcomes

Conclusion

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