The Indonesian Health Care Reform: Lessons for Pharma Industries by Hasbullah Thabrany

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Universitas Indonesia, Center for Health Economics and Policy Studies

The Indonesian Health Care Reform:Lessons for Pharma Industries

Hasbullah ThabranyPresented at the Workshop on Universal Health Care

Singapore, January 29, 2013



Health Care Reforms Toward UHC1. 1974: Almaata Declaration “Health for All by the

Year 2000”. Expansion of primary health care2. 2000: World Health Report reported

performances of health systems of the membercountries. Catastrophic health care wasintroduced.

3. 2005: World Health Assembly encouragemember countries to achive universal healthcoverage (UHC)

4. All of the reforms, mainly focus on health carefinancing

1/24/2013 H Thabrany - HC reforms in Asia 2

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Universal Health Care – Universal Access to Health Care

1. Many middle income countries are movingtoward universal coverage, to ensure universalaccess to essential treatments

2. Some use partial approaches (Indonesia,universal access to birth delivery in health carefacilities) some use comprehensive approches(Thailand Universal Health Coverage)

3. Some pharma companies conduct innitiativesto improve access for certain high costmedicines



Options for Health Care Financing:Countries are in Different Stages

1. Private financing, business model—address the libertarianequity and NEVER lead to universal coverage

a) Out of pocket, traditional, riskiest for impoverishments.b) Private health insurance, response to the uncertainty, risk

transfer scheme, normally risk-based premiumc) Charity, donation. Not sustainable

2. Public financing, monopolistic, address egalitarian equitya) Tax funded, monopolistic,b) Social health insurance (SHI), quasi monopolistic, income-

based premium/contribution (not-risk related)c) Mixed tax and SHI

3. In reality, in all countries, there is mixed public financingfor the basic supplemented by private financing withvarious mixed levels


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The Reality of HC Financing1. Financing through insurance mechanism. A transfer of

risks to an insurer. However, there are market failuresof commercial insurane schemes

1. Higher risks individuals must pay higher premiums. Oftenthey cannot afford

2. Elderly, very high risks with low or no income, unable tobuy insurance. US – Medicare: a universal health carefor elderly

3. Preexisting conditions almost always are not covered4. Poor or low income individuals will never buy insurance

2. Social Health Insurance (SHI) then becomes an option.However, it has limitations in collecting contributionand sharing of risks, mainly in the informal sector



The Tax Based and Charity Financing

3. Public Financing through tax based. The NHS (NationalHealth Service) model solves many SHI collectionproblems in the informal sector, but..

1. It run well in developed countries where tax administration isreliable and trusted

2. Often delivery of health care only available in public healthcare providers. Many people live far away from the publicproviders

3. Quality of services (perceived) often not good. Leading themiddle (and up) income people do not utilize their right

4. Bureaucracy and long waiting are often complained4. Donation/charity care, etc.. Sustainability and adequacy

of this funding are not reliable. It works only temporarilyin low income countries


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Universal Coverage and LimitedResources

1. Public financing (tax based, social healthinsurance, and combination of them) is the onlyoption to ensure universal health care.

2. However, public financing is often susceptiblefor fraud and moral hazard. Couple with highinformation assymetry, public financingincreased health care expenditures

3. On the other hand, health care costs continue torise, from increasing needs/demand, inefficientsystems, moral hazard, fraud, etc.

4. Cost-control mechanims become a must



Problems of HC costs—Continue to Rise!

Main factors:1. Cost of living2. High social values of healthy living/life3. Ageing. Last year of life consumes about 25% of total health care

expenditure in developed countries4. System/market failures

a) Higher demand higher pricesb) Higher supplies higher pricesc) Financing systemsd) Delivery (payment) systems

5. Use of high technologies high ends drugs6. Moral hazard and fraud


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Total HealthExpenditureas % of GDP

of SomeCountries

0 5 10 15 20

Viet NamUnited States of America

ThailandSingapore

Russian FederationRepublic of Korea

PhilippinesPeru

Papua New GuineaNew Zealand

MexicoMalaysia

JapanIndonesia

ChinaChile

CanadaBrunei Darussalam

Australia

% GDP

20102000

Source: WHO database1/24/2013 H Thabrany - HC reforms in Asia 9


Per CapitaTotal HealthExpenditure

at Int $ ofSome

Countries

0 2000 4000 6000 8000 10000

Viet NamUSA

ThailandSingapore

Russian FederationRepublic of Korea

PhilippinesPeru

Papua New GuineaNew Zealand

MexicoMalaysia

JapanIndonesia

ChinaChile

CanadaBrunei Darussalam

Australia

Per Capita Expenditure

20102000

Source: WHO database1/24/2013 H Thabrany - HC reforms in Asia 10

Although current spending onhealth is relatively low in Asia,the future spending certainlywill increase

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Cost Control Mechanims1. Regulatory/non market model:

1. Direct provision of health care by salariedgovernment employees

2. Direct production of medicines medical supplies3. Public procurement of medicines and medical

supplies. High volume advantages4. Setting drug formulariums and uniform prices by the

governments.5. Setting maximum benefits/technologies to be

covered6. Often, inefficiencies occur: corruption, kickbacks,

wastes, and lack of sense of belonging



Cost Control Mechanisms

2. The (limited) Market model (becoming morepopular)

1. Use a market (competition element) to push costdown

2. It Only works in delivery side, not in financingside.

3. It overcomes problems of information asymetry4. Most market models use risk-based payment

systems to suppliers/health care providers


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The Major Risk-Based Payments1. Capitation. It involves risk of uncertainties. It is

similar to insurance premium concepts.Normally, it has some limits to protect providersfrom bankcruptcy

2. DRG (Diagnosis Related Groups) or CBG(Casemix Based Groups): it reduces inefficienciesin the providers’ side.

3. Other limited bundling methods: case rates,procedure/package rates, and per diem rates.

4. Combination of the aboves (both regulatoriesand market models)




Current Health Insurance Schemesin Indonesia

1. Civil servants and retired government employees arecovered by Askes, a 44 yeard old social health insurancescheme. Coverage 16.5 million people

2. Millitary and police family are covered under the Ministryof Defence. Coverage 2.5 million

3. Private employees are covered by a 20 year old SocialSecurity Scheme (Jamsostek)– 6 millions are covered

4. The poor and near poor (76.4 million) covered by theNational medicaid system (Jamkesmas)

5. Some low income (15 million) are covered under localgovernment medicaid systems (Jamkesda)

6. Private health insurance cover about 7 millions

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More on Current SHI SchemesCharac-teristics

Askes Jamsostek

Groupsmandated

Civil servants,

Retired CS, Retired militarypersonnel, Veterans

Private employers with => 10employees or pay salary >IDR 3million a month

Contribution/premium

4% of basic salary. No wageceilings. Gov’t (employer)2% and employees/pensionoers 2%

3% salary for bachelor employee

6% salary for married employees.Ceiling was IDR 1 million permonth until 2012

Contributor Employees 50%, employer50%

Employers 100%

Carrier/Institutions

PT Askes, for profit

(the main Problem)

PT Jamsostek, for profit

(the main Problem)



Current SHI Schemes - 2Charac-teristics

Askes Jamsostek

Benefits Comprehensives, no specificexclusion. Drugs are covered ifprescribed within a formulary(DPHO)

“Comprehensives”. BUT, Cancertreatment, cardiac surgery,hemodialysis, and congenitaldiseases are not covered until2012. Drugs are covered ifprescribed within the formulary

Dependentscovered

Spouse +

2 children under 21 years, notworking and not married

Spouse +

3 children under 21 years, notworking and not married

Servicesprovided by

Mostly public health centersand public hospitals.

Special fee schedules set bythe government, 60-110% oflocal public fee schedules

Mixed: public and privateproviders

Payments: negotiated. Inpatient atclass II public hospitals and classIII private hospitals

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In Indonesia1. Inefficiencies occur due to the system, fraud, moral

hazard, and patient ignorance2. Share of drugs to the total health expenditures varied 25-

50% in many schemes/health care providers3. Factors affecting large variation are, among others:

a) Variation of doctors’ feesb) Variation of operational costsc) Variation of medical technologies appliesd) Inefficiency due to irrational prescriptionse) Collusion between pharma industries with hospitals/doctors

4. Reform to a single payer system will have many impacts



THE REFORM IS MOVING TOWARDUNIVERSAL COVERAGE, THE NATIONALHEALTH INSURANCE, (INA-MEDICARE)THE LARGEST SINGLE PAYER –IT WILL COVER 257 MILLION PEOPLE BY2019

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The Key Features of the INA-Medicare

1. All people will be insured by the NHIC, to be completed by2019

2. The benefit package will be comprehensive, medicallynecessary. However, there are limits in room and board ofhospital confinements. Class III for the low income (fullysubsidized contribution), Class II for lower payingcontributors, and Class I for the higher payingcontributors. VIP room or above are supplementary bycorporation or insurance companies

3. Payment for primare care is capitation (including drugs)and to secondary-tertiary care will be DRG (DiagnsisRelated Group) including medicines.

4. Some high cost medicines may be paid separateley onbundle prices


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The Health Care Deliveries

1. The NHIC will contract to selected health careproviders, based on a credentialing process.

2. Public and private providers will be paid on a uniformprospective payments by regions.

3. In the final stage, primary care will be geared towardone-stop primary care clinics (including drugs andsimple laboratory tests)

4. During the transition period (2-3 years), combinationof all inclusive and non-inclusive drugs will beinevitable. Essential drug lists combined DRG withtender of frame work prices will be implemented



The Impact of the Reform

1. BPJS/the National Health Insurance Corporation(NHIC) will cover 120-130 million in 2014 and 257million in 2019.

2. The NHIC will have huge power to determin prices ofhealth care (prospective payments).

a) It pushes providers to be efficientb) It creates competition among providers for quality of

services (same payment for the same diagnosis)c) It increases demand for health cared) It has better control of moral hazard and fraude) It will be able to implement pay for performance of drugs


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Lesson from the Askes Large Pool: It has beenable to Control Drug Expenditures.

Trend of Askes’ Total Health and Drug Expenditures (IDR Mill) 2000 - 2011


290.961507.516

665.949 981.524 1.248.7401.678.499

2.006.661

2.538.606

2.720.2073.492.589

4.513.653

5.818.122

6.926.352

159.104235.301

243.055300.936

361.391

441.327

482.325

704.704

716.298

1.001.5101.247.537

1.641.543

1.725.432

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Realisasi2011

Proy2012

Biaya Pelkes

Biaya Obat

Source : Lapmen

Biaya Obat

Biaya PelkesSource : Lapmen

Biaya Obat


Biaya Obat


Biaya Obat

Biaya Pelkes


The Expected Higher Demand for Health Care

1. The number of hospitals/beds has been increasing ofmore than 100% in the last five years. Chain hospitalsand clinics are now investing, even in a small town

2. Patented and expensive drugs and procedures, thatare currently unaffordable, will be in higher demand.

3. Dispensaries/apoteeks and drug stores will have toadjust their bussinesses to meet effient health caredeliveries.

4. Domestic pharma industry will benefit the mosts,considering their current dominant market share(about 70% of revenues).

5. Group purchasing, by chain providers or virtual chainproviders, will expand


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Foreign Investments1. Under current national policies, foreign

investiments are opening and becoming moretransparents

2. The 2015 ASEAN Free Service and TradeFramework will provide a more competitivemarketplace. Foreign doctors will have moreopportunities to practice. However, legal andprocedures are not yet to be established.

3. Competitors of low-cost drugs, from China andIndia, will be more likely to increase competitionto domestic and multinational pharmacompanies



Drug Bussinesses1. The risk of high cost of medicines will be in the

providers’ side.2. Current long-distribution channel will have to change.

E-procurement using a frame-work price competitionis started in 2013 for generic only.

3. Kick-back practices will be decreasing4. Proof of cost-effective drugs/interventions will be

required to be covered. A special committee will beestablished in the MoH

5. Pharma industries must focus selling cost-effectivedrugs and must deal with HC providers or group of HCProviders


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Some Challenges1. Drug licensing remain slow due to bureauratic

procedures that will take some time to bereformed.

2. Currently, the Food and Drug Agency (BPOM) isundertaking such reform.

3. Licensing requirements for fully and partiallyforeign investment in health care providers anddrug production-distribution are still inefficients.

4. Tax treatments on drugs and medical suppliespush drug prices in Indonesia are relatively high



More Discussions and Debates willbe Facilitated During the

Discussion Session


Documents

The Indonesian Health Care Reform: Lessons for Pharma Industries by Hasbullah Thabrany