Health Reform Experiences Future Challenges in the European Region

1
Health Reform Experiences - Future Challenges in
the European Region
Armin Fidler The World Bank

• Open Health Institute Presentation
  and Discussion at the
  Summer School,
• Moscow, July 2004

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
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 (gt3)
• 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 dont
  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
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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
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.

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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
Cost-efficiency at Microeconomic Levels

• 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

• Demand Side
• Cost sharing
• Austria 70/30 Public/Private (20OOPP)
• Gate keeping GPs
• Issue Payment systems
• Limits on coverage of statutory package
• Create competitive supplementary insurance market

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)
• peoples 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

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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

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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 fromrich to poor
Cross-subsidy from low-risk to high-risk
Resource endowment
Resource endowment
Resource endowment
Pro-ductive
High risk
Non-productive
Rich
Low risk
Poor
Health risk
Income
Age
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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.

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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)

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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
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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