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Health Care System of Ukraine in the Context of Transition to

the Market Economy

Yevgeny Orel, C.Sc.(Econ.), DocentFaculty of Economic Science

National University “Kyiv-Mohyla Academy”

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Outline of the presentation

• Introduction: Health care and a market economy• Soviet legacy in the healthcare system• Brief history of the healthcare reform in Ukraine • What Constitution says• Health care: Socioeconomic issues• Tax funding and social health insurance• Donor projects• Healthcare system reform strategies• Conclusive remarks

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Key economic problems (a reminder):

• Infinite needs

• Finite resources

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Economic features of health care that make it special (Kenneth Arrow): • Government involvement;

• Uncertainty;

• Asymmetry of information;

• Externalities.

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1.) Government involvement

• Tremendous, compared to other fields of human activity.

In what ways?

WHY specifically health care?

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2.) Uncertainty

• “The dominant presence of uncertainty at all levels (underscored by me. – EO) of health care, ranging from the randomness of individuals’ illnesses to the understanding of how well medical treatments work, and for whom” (Phelps).

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3.) Asymmetry of information

• “The large difference in knowledge between doctors (and other providers) and their patients, the consumers of health care”. (Phelps)

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4.) Externalities

• “Behavior by individuals that imposes costs or creates benefits for others”. (Phelps)

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Specific features of markets in the context of the health care:

• Uncertainty of demand;

• Asymmetry of information;

• Local monopoly position of suppliers;

• Conflict between ethical and economic considerations;

• Significance of externalities.

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HCE important task:

• “An important task of health economics is to distinguish which tasks are best performed by government, which are best left to unregulated markets, and which need some combination of public and private action” (Getzen)

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Production of health (?)

• Consumer’s demand for health care?

• – No, consumer’s demand for health.

• Health care service is a good? • – It is rather a bad.

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Production of health (cont.)

• Derived demand for medical care. (like for

subassemblies?!)

• Consumer demand for health. (like for cars?!

No, because we can’t buy/sell our health)

• Supplier-induced demand, SID

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The legacy of the Soviet Healthcare System• Positive aspects:

– Universal entitlement of all population;– Universal access, very few financial barriers;– Evenly distributed burden of financing;– Comprehensive range of services, well-developed specialist-

focused care.

• Negative aspects:– All health facilities government-owned;– Emphasis on input indicators (numbers of physicians, beds, etc),

its discrepancy with demand; – Distorted incentives:

• Emphasis on secondary and tertiary healthcare facilities;• Poor quality of service;

– Poorly-developed primary care;– Oversupplied healthcare infrastructure resulted in over-utilization

of health services.

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Health care reform in Ukraine [1]

• 1992– Law: Principles of the Legislation on Heath Care in

Ukraine;– Curriculum and program for specialization as

General Practitioner approved by Ministry of Health;

• 1994– On Ensuring Sanitary and Epidemiological Well-

being of the Population;

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Health care reform in Ukraine [2]• 1995

– Laws: on blood donation, on narcotic drugs and psychotropic substances and their trafficking,

– General Practitioner/Family Physician formally approved as job positions;

– Family Planning National Program approved;• 1996

– Constitution of Ukraine; Law on Medicines; Law on Insurance;

– User charges for defined services provided in public health facilities introduced;

– Medical industry development program approved (1997-2003);

– “Children of Ukraine” National Program approved;

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Health care reform in Ukraine [3]

• 1997-2002– A large number of laws and legislative acts; this included second-

reading approval of the Draft Law on Mandatory State Social Health Insurance;

– The Constitutional Court ruled user charges unconstitutional;• 2003

– Third-reading rejection of the Draft Law on Mandatory State Social Health Insurance;

– Amendments to the Law on Procurement of Goods and Services toward establishment of open tenders

• 2004– One more failure to approve the Law on Mandatory State Social

Health Insurance;– Open tender-related scandal.

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Constitution of UkraineArticle 3

The human being, his or her life and health, honor and dignity, inviolability and security are recognized in Ukraine as the highest social value.

Human rights and freedoms and their guarantees determine the essence and orientation of the activity of the State. The State is answerable to the individual for its activity. To affirm and ensure human rights and freedoms is the main duty of the State.

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Constitution of UkraineArticle 49

• Everyone has the right to health protection, medical care and medical insurance.

• Health protection is ensured through state funding of the relevant socio-economic, medical and sanitary, health improvement and prophylactic programmes.

• The State creates conditions for effective medical service accessible to all citizens. State and communal health protection institutions provide medical care free of charge; the existing network of such institutions shall not be reduced. The State promotes the development of health care facilities of all forms of ownership.

• The State provides for the development of physical culture and sports, and ensures sanitary-epidemic welfare.

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Ukraine health care system, like the whole country, suffers from:

• Inconsistent social and economic policy;• Lack of equal conditions for all economic entities;• Unfavorable investment climate;• Imperfect tax policies

B.Tymkovych, 2004• Frequent reshuffling of the government (each

minister’s term of office averaged a year)• Political instability and overall unpredictability of

business climate.

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Ukraine's social and health statistics reflect the impact of nine years of economic decline.

• 1991-1999 – GDP declined by ca. 60%.

• Share of HC expenditures in GDP down from 4.9 in 1996 to 3 in 2004.

• “Healthy“-rated population down from 54 % in 1995 to 46 % in 2000.

• Live birth per 1000 – 7-8 (declining)

• Death rate per 1000 – 15.3 (increasing)

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HIV/AIDS in Ukraine

• As of April 2005, 79099 registered HIV-positive, incl. 9272 children. Health officials estimate the actual number ca. 500,000, or about 1 % of the population.

• By April 2005, 6009 registered patients died of AIDS, incl. 165 children.

• New registered cases (selected years):– 2002 – 7377– 2003 – 8166– 2004 – 10198

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HC expenditures as % of GDP:

• Recommended by WHO: 7-8%

• Georgia – 0.8%• Ukraine – 3% (not counting shadow economy)• Armenia – 4%• Hungary – 5%• Germany – 8-9%• USA – 15% (!) [of 10 trillion US$]

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GDP growth in 2000-2004…

• …did not effectively tell on the health care sector (and not only HC sector!)

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Common problem for Central and Eastern European (CEE) countries:

• “Extremely centralized management of healthcare provision and financing.”

Source: Decentralization in Healthcare, 2005

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Problem of healthcare system in selected countries, Ukraine incl.

• Structural disproportions

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Structural Disproportions in the Health Sector (Source: Decentralization in Healthcare, 2005)

Indicators Ukraine Countries with Well Developed HCS

Portion of hospital care expenditures 80-85% 36-50%

Hospitalization rate 19.4% 12-17%

Average length of inpatient stay 14.9 days 8-13 days

Number of bed-days per resident 2.9 0.9-2.3Portion of primary health care expenditures 4-5% 20-30%

Percentage of primary physicians 20% 60%

Annual number of visits per resident 9.7 4-6Frequency of primary healthcare referrals to hospital specialists

60% (in

cities, incl.self-referrals)

4-10%

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Health care financing (1):

• Public funding:– Tax-based– Insurance-based

• Private funding:– Private insurance– Out-of-pocket payments - OOPS

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Health care financing (2):

• Tax funding;• Patient payments: cost-sharing, co-

insurance, deductibles, OOPS;• Social health insurance (community

insurance);• Private health insurance;• Other sources: NGOs, domestic and

international donors, legacies, etc.

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By-country breakdown of financing (%)Tax SHI PHI OOP Other

UK 72,5 7,2 4,5 15,8 0,0France 5,9 66,4 9,1 17,0 0,8Germany 11,8 68,6 6,9 11,7 1,0Netherlands 4,8 73,8 14,1 7,3 0,0Denmark 86,6 - 1,9 11,4 0,0EU 31,9 47,0 6,3 15,5 0,2

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“Odd” cases:

• Belgium: OOPS = 20%• Ukraine: OOPS = ca.70% (shadow economy larger in

health care than overall)• Estonia: No informal payments!(?)• USA:

– 40-45 mln. not-insured– 40 mln. Underinsured

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To insure for health care? WHY?

• Uncertainty of demand for health care;

• Need to alleviate catastrophic expenditures for household budgets;

• Illness mostly occurs when our income is low.

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State funding systems:

• General taxation

• Earmarked payroll tax

• Social insurance

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Tax funding advantages

• A range of revenue sources, i.e. not a single one;

• STA/IRS/other-equivalent as a single collector versus numerous state departments;

• Control over government expenditures is easier;

• Equitable funding, since taxation is mostly progressive.

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Tax funding problems, part 1:• Political priorities often tell on HC budget;• Grey/black economy

– US: ca.10%– Germany: 15%– Ukraine: 55% (give or take a jumbo-jet )

• Equal access (?);• Government bureaucracy:

– Groups of interests;– Kickbacks;– Others.

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Tax funding problems, part 2:• Equity:

– in financing;

– in access;

• Lack of resources if taxation is regressive (when goods

are taxed, not income);• Rigid allocation of health care resources;• Lack of incentives;• Not patient-driven;• Waiting lists (you can’t pay and skip the queue).

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Earmarked payroll taxes

• Money is committed to the health sector;

• Tax levied on employment, i.e. no other income is taxed;

• Tax on employment contingent on business cycles;

• Narrow funding base;

• Tax burden is spread upon other people.

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Social health insurance

• Mandatory insurance scheme

• Same as earmarked tax, but entitlement depends on actual contribution

• Social insurance fund usually duplicates general taxation system (like STA or IRS)

• Premiums split between employer and employee in a certain proportion.

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Social health insurance problems

• Economic growth tells on the amounts of social insurance funding;

• Grey/black economy;

• Administrative complexity;

• Government bureaucracy;

• Moral hazard;

• Lack of consumer choice (e.g. in France).

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Is everybody in the new government supportive of the mandatory social

health insurance?

Will a mandatory social health insurance ever be introduced in

Ukraine?

Does Ukraine need it?

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EU Project “Health Financing and Management in Ukraine”

• Overall objective of the Project development of an effective and efficient health care financing and management system in Ukraine.

• http://www.healthfin.kiev.ua

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Components of the EU Project: • To build capacity within the MoH to prepare the pre-

requisite conditions for introduction of social health insurance.

• To develop two pilot projects to demonstrate efficient and effective world heath insurance "best practices".

• To develop sustainable training processes for specialists in the field, medical institutions' administrators and experts related to the HIF.

• To provide for positive perception of the reform among population by means of implementing a wide-scale public awareness campaign in mass-media.

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USAIDAmong the 13 strategic objectives for which USAID

requests funds: – Increased Promotion of Good Health and Access to Quality

Health Care• increasing access to quality primary health care services and

promoting family medicine; • improving quality of reproductive health services and supporting

reproductive policy reforms; • arresting the spread of infectious diseases focusing on HIV/AIDS and

TB epidemics; • improving health services to the population affected by the Chornobyl

accident; • surveillance and prevention of birth defects (BDs).

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Other donors:

• DFID (HIV/AIDS Socio-Economic Impact);

• WB;

• UN Family in Ukraine (UNDP, UNAIDS, UNFPA,

UNICEF);

• SIDA;

• CIDA;

• Etc.

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[a repeat slide] Structural Disproportions in the Health Sector (Source: Decentralization in Healthcare,

2005)

Indicators Ukraine Countries with Well Developed HCS

Portion of hospital care expenditures 80-85% 36-50%

Hospitalization rate 19.4% 12-17%

Average length of inpatient stay 14.9 days 8-13 days

Number of bed-days per resident 2.9 0.9-2.3Portion of primary health care expenditures 4-5% 20-30%

Percentage of primary physicians 20% 60%

Annual number of visits per resident 9.7 4-6Frequency of primary healthcare referrals to hospital specialists

60% (in

cities, incl.self-referrals)

4-10%

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Hospital Care Restructuring and Primary Health Care Reform in Ukraine

(a proposed scope of lines)

• “Replace hospital care with outpatient care when possible;

• Develop home surveillance for aged and disabled patients;

• Change the legal status of hospitals from budgetary organizations to paid-service enterprises;

• Promote integration of inpatient, primary and social care;

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Hospital Care Restructuring and Primary Health Care Reform in Ukraine [2]

(a proposed scope of lines)• “Gradually introduce single physician (GP) PHC

provision, making doctors responsible for their patient communities;

• Introduce administrative and economic mechanisms that lead to rational use of available health care funds;

• Develop a system of incentives for medical staff of general/family practice facilities to enhance their performance (incl. salary incentives)“

Source: Decentralization in Healthcare, 2005

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Ways to reduce the number of hospital beds in Ukraine (scope of lines)

• “[where possible] Convert hospitals into nursing homes and long-term care facilities with expanded medical surveillance, rehabilitation and treatment of chronic patients;

• Close maternity homes after maternity departments have been opened at general hospitals;

• Set up geriatric departments for acute patients at general hospitals: use existing empty beds, close mental long-term hospitals, develop sopcial social services and outpatient facilities;

• Close facilities that are not up to current standards.”

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Ways to reduce the number of hospital beds in Ukraine (scope of lines) [2]

• “Open TB departments at general hospitals for short-term examination and treatment; focus on long-term community service support;

• Set up alcohol/drug rehabilitation and treatment centers as general hospital departments, involving community service support;

• Convert hospitals into special asylums for the homeless and victims of physical/sexual abuse;

• Create hospices to take care of terminal patients.”

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Health care reform activities in Ukraine:

• Strategic interventions. They aim at structural reorganization;

• First-aid actions. They seek to preserve and maintain the current system;

• Changes resulted from political and economic transition

Source: “Health Care System in Transition: Ukraine”, 2004

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Strategic interventions [1]:

• Reorganization of primary health care on the principles of general practice / family medicine (1994-2000, in fact, training reorganized, system not);

• CabMin Resolution (2000) “On Comprehensive Measures for Introducing Family Medicine into the Health Care System”:– Family ambulatories in rural areas;

• Implementation heavily depends on political attitudes (Kharkiv, Zhitomir, Poltava);

Source: “Health Care System in Transition: Ukraine”, 2004

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Strategic interventions [2]:

• Law on Procurement; contractual relationships

• Exceptional case – December, 1995 – government-supported health insurance for railroad workers (limited application, within railroad health care facilities);

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First-aid actions [1]:

• Efforts toward preserving and maintaining the current system (Semashko system);

• Approval of user charges for selected services;• Approval of voluntary contributions and donations

(complementary sources of health finance).

Source: “Health Care System in Transition: Ukraine”, 2004

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First-aid actions [2]:

• Rhetorical issue of defining “health care” as distinct to “health service” (you can pay for the latter, but not fo the former)

• Maximum norms of beds established in 1997 for the most cost-intensive hospitals

• How to get rid of shadow economy? How to let people pay in line with their means? How to deal with impoverishment?

Source: “Health Care System in Transition: Ukraine”, 2004

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Changes caused by economic transition [1]:

• Democratization, decentralization, deregulation, development of market economy – resulted in decentralization of power and in local self-government development;

• Hence, health care financing more phasing out from the central budget into local budgets;

• But – this has inhibited the potential of Ministry of Health in reforms implementation;

Source: “Health Care System in Transition: Ukraine”, 2004

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Changes caused by economic transition [2]:

• Transition to market economy resulted in development of non-governmental sector in the health care system (privately owned first-aid ambulances, privately owned maternity home, etc)

• Domestic pharmaceutical industry is on the rise, exceeding their foreign competitors.

• Had it not been for at least partial market reforms in health care, the access of most people to health care services would have been significantly limited.

Source: “Health Care System in Transition: Ukraine”, 2004

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Other remarks [1]

• Legal framework: – fragmentation,

– complexity,

– overlapping,

– ambiguity;

• Inadequate resources to meet goals;• Poor efficiency, both allocative and technical.

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Other remarks [2]

• Primary health care reform in progress;

• Created were legal prerequisites for:– private health care sector;– Manufacturing and distribution of

pharmaceuticals;

• Voluntary health insurance developing.

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Major strategy for the future:

• Improving the management of the existing system:– More efficient use of limited resources;– Ensuring access of people to the heath care

facilities and services;– Focus on prevention and social services, de-

emphasizing the role of inpatient facilities.

(*_*)

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Thank you for attention!Дякую за увагу!

Спасибо за внимание!