Health Reform Experiences - Future Challenges in the

European Region

Open Health Institute Presentation and Discussion at the Summer School,

Moscow, July 2004

Armin FidlerThe World Bank

Objective of Presentation and Discussion: Outline what happened to health systems in the OECD

over the last decade Illustrate the choices and tensions which arise from the

organization of health systems Highlight fiscal affordability and questions of long-term

sustainability Provide an outlook on some of the future challenges for

health systems, such as ageing (example of Austria). Discuss the relevance of these OECD experiences for

Russia in the long term.

Gross National Income Per Capita (PPP)

0

2,000

4,000

6,000

8,000

10,000

12,000

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Central Europe

Baltic States

Western CISBulgaria and Romania

Other South-Eastern Europe

Central Asia

Caucasus

Total health expenditure as % of GDP

<= 12<= 10<= 8<= 6<= 4<= 2No data

EU-15: 8.9 (2001)

Central, South East Europe & Baltics: 5.8 (2001)

Impact of Early Reforms in the Last Decade Slowly improving health status but low user satisfaction Separation of funding from supply, Social Insurance High growth rates of (mostly private) providers and

increase in providers revenue Devolution of ownership structure of hospitals From budget to fee-for-Service to budget caps Funding fragmentation creates considerable

administrative costs (>3%) Comparatively low health care wages curtail even higher

growth of expenditures Public Health collapse

Which Values? Evidence versus Ideology

Social solidarity Focus on fairness and

equity Explicit cross-subsidy Social protection Universal Access, not

related to income Role of state usually

important State capture? Most prevalent in OECD

Individual responsibility Focus on efficiency Little cross-subsidy Limited Access Stratification by income Individual risk rating Limited risk pooling Consumer protection? US Model and attempts in

FSU

Sources and Management of Health System Revenues

Pri

vate

Pu

blic

Taxes

Public ChargesSales of Natural

Resources

Government Agency

Social Insurance /Sickness Funds/Obras

Mandates

Revenue Source

Public

PrivateGrantsPrivate Organizations /

Insurers

Employers

Individuals

Borrowing

Charity

Out-of Pocket

Private Insurance

Management Providers

Expenditure Reduction Versus Fiscal Sustainability Expenditure = short-term, emergency measure

Reduced services Improved operational efficiency

Fiscal sustainability = measures, known to persist, compatible with political + economic incentives Institutional measures (restructuring) that don’t rely on political

discretion (e.g., on amount of state subsidy to loss-makers) Have built-in incentives – for instance, to modulate future

excessive demand for, or supply of, services (e.g., co-payments) Values/consensusValues/consensus matter for political sustainability (and

incentives) Medium-term consensus framework to match

medium-term fiscal framework

Growth Rates of Public Expenditure on Health Care and Total Public Expenditure

-5

0

5

10

15

20

25

BE DK DE EL ES FR IE IT LU NL AT PT FI SE UK EU-15

average annual increase in public expenditure on health care, 1999-2002*

average annual increase in total government expenditure, 1999-2002*

Dynamic Issues How low can public health expenditures go?

Values matter here – how much should individuals pool their resources and risk (through budget), or assume individual responsibility?

How can contingent liabilities be contained? For example, government guarantees of commercial debt, if not

properly provisioned for, can de-rail expenditures in future. How can the revenue base be maintained?

High payroll tax rates, in an integrated labor market, can lower employment growth

Through shifting economic activity from one country to another Through driving employment to untaxed informal

economy

Evaluating Fiscal Effect of Reforms: A Simple Framework-

Low Predictability

High Predictability

High Cost-Efficiency

Low Cost-Efficiency

0.20

0.25

0.30

0.35

0.40

0.45

0.50

0.55

1994 1995 1996 1997 1998 1999 2000 2001

Georgia

Moldova

Russia

Estonia

Serbia and Montenegro

Kyrgyzstan

Azerbaijan

Romania

Poland

Hungary

Income inequality, 1994 - 2001 (Gini coefficients)

Accounting of Health Production

• Physical environment

• Life style

• Other socio-economic factors

•mortality• morbidity and QoL

•Perceived health status•Impairment, disability, handicap•Multi-dimensional health status•Disease-specific morbidity

Modification of health status

Health needs

Utilization of health services

(personal & collective)

Cost = Price x Volume

• Earnings• Fees• Capital

Input to healthservices

Population Health Status

•Manpower• Health facilities• Intermediate products•Medical knowledge & technology

Resources

•Training/education• Investment into medical facilities• Medical R & D

Investment

Expenditure on health by

establishments of providersExpenditure on health by Functions•Public health services• personal services and goods by,

• age group• disease (ICD• ATC (pharmaceuticals)• DRGs (inpatient care), etc.

Sources of financing

(intermediate & ultimate financing)

Structural Problems

Long-term fiscal sustainability threatened at already high levels of expenditure and debts

Consumer demand will continue to rise New technologies as cost drivers Excess capacity/distribution of resources Over- consumption

Drugs (highest in OECD at 25%), sick leave Ageing (disability and social cases in acute care) Inefficiencies at the continuity of care-interface

Cost-efficiency at Microeconomic Levels Demand Side

Cost sharing Austria: 70/30%

Public/Private (20%=OOPP) Gate keeping GPs

Issue = Payment systems Limits on coverage of

statutory package Create competitive

supplementary insurance market

Supply Side Purchaser-Provider Split

Selective Contracting Payment systems

DRG, Capitation, etc. HTA

Public agency (NICE in UK; ANDEM in France)

Provider Competition Good attempts in CZR

Management Decentralization HR policies

Challenges: Financial Sustainability of Health Systems

Major cost pressures new medical technologies, incl. drugs ageing society pressure to increase salaries of health care personnel (in particular in new EU countries) people’s expectations rise (EU) need to replace and maintain infrastructure

Focus: Eastern Europe public sector bears most of financial risk (92% of health care expenditure is public) excessive and expensive hospital capacity uncommonly high utilization of health services

Emerging Evidence on What May Work (1) Balance between public and private finance

co-payments for publicly paid services privately paid services – cross-subsidy some risks can be shifted to private risk pools equity should be over-riding concern

Provide financial incentives for efficiency and quality pooling funds active purchasing performance based funding of health care providers

Strengthen Primary Health Care gate keeping

Emerging Evidence on What May Work (2) Contain drug costs

no single solution, all available instruments used broad reference pricing, regulating wholesale-retail margins,

substitution for generics, prescription guidelines and monitoring, feedback to physicians, drug budget holding for group GPs

Proactive policies to optimize hospital capacity Management and governance reforms of health care providers

Decentralisation; autonomy; privatization Other policies to improve quality and access

evidence based medicine

$

Age

Capacity to contribute for a person on average

Average lifetime healthcare costs for a person

A

Need for subsidy

The Need for Cross - Subsidization

20

Pooling of Revenues... Equalizes Inequities

Cross subsidy from productive to non-productive part of

the life cycle

Cross-subsidy fromrich to poor

Cross-subsidy from

low-risk to high-risk

Pro-ductive

Non-produc

tive

AgeR

esou

rce

end

owm

e nt

Low risk

High risk

Health risk

Res

ourc

e en

dow

me n

t $

$

Poor Rich

Income

Res

ourc

e en

dow

me n

t

$

$

$

$

Determinants of Austrian Health Care Expenditure (IHS Study)

Demand Factors Increasing share of people 65+ increases health expenditure

noticeably. Higher number of deaths increases health expenditure slightly. Increasing life expectancy of the elderly is reducing health

expenditure (compression of morbidity). Supply and Policy Factors

Increase in the number of radiologists (proxy for technology) increases health expenditure somewhat (supplier induced demand).

Rise in acute-care beds leads to rising health care expenditure. High level of health expenditure leads to lower growth

rates of health expenditure.

In Austria, there is one youth for each person older than 65 now...

...but in 2030, there will be two elderly for each youth.

24% 17% 14%

62% 68%61%

14% 16%25%

0%

20%

40%

60%

80%

100%

1970 2000 2030

65+

15-65

<15

USA: 20-30% (Scitovsky, Capron 1986)

UK: 29% of hospital costs (Seshamani, Gray 2003)

A: 10-18% of public hospital costs (Riedel, Hofmarcher 2002)

Health Expenditures Last Year of Life

Austrian Model: „Resistant policy“ leads to higher health GDP share

Forecast of health care expenditure in percent of GDP, 2000 to 2020

0,0

2,0

4,0

6,0

8,0

10,0

12,0

14,0

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

neutral

progressive policy

resistant policy

Austrian Model: Supply and Demand Factors and Expenditure Growth

-7,0%

-5,0%

-3,0%

-1,0%

1,0%

3,0%

5,0%

7,0%

Expenditure quotientLife expectancy at the age of 65Number of acute-care bedsNumber of radiologists Share of over 65-year-olds "net growth"

Scenario „neutral“, growth rates in percent

Long-Term Care Funding/Coverage

Country Service Funding Coverage

A Nursing Home

Personal Home careGeneral Taxation Universal

D Nursing Home

Personal Home careContributions Universal

IRL Nursing Home

Personal Home careGeneral Taxation Means-tested

L Nursing Home

Personal Home careGeneral Taxation

Contributions

Universal

NL Nursing Home

Personal Home careContributions Universal

E Nursing Home

Personal Home careGeneral Taxation Means-tested

S Nursing Home

Personal Home careGeneral Taxation Universal

UK Nursing Home

Personal Home careGeneral Taxation Means-tested

In Summary and for Discussion: In emerging market economies and in OECD health

expenditures grow faster than GDP, resulting in fiscal pressures Fiscal pressures stimulate a debate about how to finance

sustainably the health sector, including the role of the State versus the citizen.

Values, history and community expectations matter in this debate

Dual task of functioning health system: Focus on externalities for society: public health; Social protection for individuals against catastrophic events

Reform can never stop – as exogenous factors emerge and societal demands and values change