Health Reform Experiences - Future Challenges in the European Region

1. Health Reform Experiences - Future Challenges in the European Region Open Health Institute Presentation and Discussion at the Summer School, Moscow, July 2004 Armin Fidler The World Bank

2. 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.

3. Gross National Income Per Capita (PPP) 12,000 Central Europe 10,000 Baltic States 8,000 Western CIS Bulgaria and Romania 6,000 Other South-Eastern Europe 4,000 Central Asia Caucasus 2,000 0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

4. Total health expenditure as % of GDP <= 12 <= 10 <= 8 <= 6 <= 4 <= 2 No data EU-15: 8.9 (2001) Central, South East Europe & Baltics: 5.8 (2001)

5. 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

6. 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

7. Sources and Management of Health System Revenues Revenue Source Management Providers Government Agency Taxes Public Public Charges Sales of Natural Resources Public Social Insurance / Sickness Funds/Obras Mandates Private Private Organizations / Insurers Grants Borrowing Employers Private Charity Individuals Out-of Pocket Private Insurance

8. 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/consensus matter for political sustainability (and incentives) • Medium-term consensus framework to match medium-term fiscal framework

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

10. 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

11. Evaluating Fiscal Effect of Reforms: A Simple Framework-

12. Income inequality, 1994 - 2001 (Gini coefficients)

13. Cost = Price x • Volume • Earnings • Fees • Capital • mortality • morbidity and QoL • Perceived • health status • Impairment, disability, • handicap • Multi-dimensional • health status • Disease-specific • morbidity • Manpower • Health facilities • Intermediate products • Medical knowledge & • technology Resources Accounting of Health Production Utilization of health services (personal & collective) • Physical environment • Life style • Other socio-economic factors Input to health services Modification of health status Health needs Investment • Training/education • Investment into • medical facilities • Medical R & D Population Health Status Expenditure on health by establishments of providers Sources of financing (intermediate & ultimate financing) • Expenditure on health by Functions • Public health services • personal services and goods by, • age group • disease (ICD • ATC (pharmaceuticals) • DRGs (inpatient care), etc.

14. 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

15. 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 Cost-efficiency at Microeconomic Levels

16. 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

17. 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

18. 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

19. The Need for Cross - Subsidization Average lifetime healthcare costs for a person $ Need for subsidy A Capacity to contribute for a person on average Age

20. $ $ $ $ $ $ Pooling of Revenues... Equalizes Inequities Cross subsidy from productive to non-productive part of the life cycle Cross-subsidy from low-risk to high-risk Cross-subsidy fromrich to poor Resource endowment Resource endowment Resource endowment Pro-ductive High risk Non-productive Rich Low risk Poor Health risk Income Age

21. 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.

22. In Austria, there is one youth for each person older than 65 now... ...but in 2030, there will be two elderly for each youth.

23. Health Expenditures Last Year of Life • USA: 20-30% (Scitovsky, Capron 1986) • UK: 29% of hospital costs (Seshamani, Gray 2003) • A: 10-18% of public hospital costs (Riedel, Hofmarcher 2002)

24. Austrian Model: „Resistant policy“ leads to higher health GDP share Forecast of health care expenditure in percent of GDP, 2000 to 2020

25. Austrian Model: Supply and Demand Factors and Expenditure Growth Scenario „neutral“, growth rates in percent

26. Long-Term Care Funding/Coverage

27. 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