Transcript ws_8_Chawla_final

Managing Health Expenditures
in New EU Member States:
Options for Reforms
Mukesh Chawla, PhD
The World Bank
Gastein, October 7, 2005
Views expressed are the author’s and do not necessarily reflect those of the World Bank
Acknowledgements
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Akshay Sethi (WB)
Anton Marcincin (WB)
Armin Fidler (WB)
Jan Bultman (WB)
John Langenbrunner (WB)
Maris Jesse (WB)
Marzena Kulis (then WB)
Panagiota Panopoulou (WB)
Paolo Belli (WB)
Peter Berman (WB)
Pia Helene Schneider (WB)
Sarbani Chakraborty (WB)
Shweta Jain (WB)
Thomas Laursen (WB)
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Christine Blades (EIB)
Imre Hollo (EIB)
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Andrzej Rys, Former Deputy Minister
of Health, Poland
Dorjan Marusic, State Secretary,
Ministry of Health, Slovenia
Jan Kralik, Director, Ministry of
Health, Slovak Republic
Laila Ruskule, Deputy State Secretary,
Ministry of Health, Latvia
Pawel Sztwiertnia, Deputy Minister of
Health, Poland
Rimantas Sadzius, Deputy Minister of
Health, Lithuania
Rinalds Mucins, State Secretary of
Health, Latvia
Inga Cabe (Consultant, Latvia)
Janina Kumpiene (Consultant,
Lithuania)
Peter Pazitny (Health Policy Institute,
Slovakia)
The Problem Statement
• Czech Republic, Estonia, Hungary, Latvia, Lithuania,
Poland, Slovakia and Slovenia – have carried out
extensive health sector reforms in recent years
• Health expenditures are not way out of line, but the
sector is in heavy debt, with expenditures
consistently exceeding revenues
• The pressure of expenditures appears to be
relentless – seemingly out of control
Layout of the Presentation
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Background: Essential Macroeconomics
Background: Essential Health Status
Health Expenditures
Key Expenditure Areas
The Underlying Fault Lines
Potential Solutions
The Economy
The average growth in the new
member states touched 5% in 2004,
a full 1% above 2003 levels……
Growth Rates, 2002-2004
10
2002
2003
Poland
Slovenia
2004
8
6
4
2
0
Latvia
Lithuania
Estonia
Slovakia
Czech
Republic
Hungary
….but unemployment rates have not
changed much
Unemployment Rates, 2003-2004
25
2003
2004
20
15
10
5
0
Poland
Slovakia
Lithuania
Latvia
Estonia
EU15
Czech
Republic
Slovenia
Hungary
deficit,
percent of GDP
4
2
0
-2
-4
-6
-8
-10
-12
-14
Slovenia
Slovakia
Poland
Lithuania
Latvia
Hungary
Estonia
Czech
Republic
….and fiscal performance has improved
2003
2004
Health Status
Health outcomes in new member states
are as expected or better for their
income level
Expected average years in poor health for males at
birth
11.0
Brazil
Lit huania
10.0
Algeria
Lat via
Hungary
9.0
Poland
Slovakia
8.0
Est onia
7.0
USA
Czech Republic
Slovenia
Luxembourg
6.0
Bot swana
Denmark
5.0
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
GDP per capita
New member states EU-15;
High-income OECD;
Middle-income high-performing;
*High-income OECD countries are USA, Australia, New Zealand, Canada, Switzerland and Norway
Source: IMF World Economic Outlook database; WHO Statistical Information System
45,000
50,000
All Causes
Circulatory System
Cerebro-vascular
EU-15
average
Slovenia
Slovakia
Poland
Lithuania
Latvia
Hungary
Estonia
1200
1000
800
600
400
200
0
Czech
Republic
SDR per 100,000
…but a comparison of death rates from
main causes shows that perhaps there is
scope for reducing mortality
Health Expenditures
Health care spending in the new member
states varies from 8.1% of GDP in
Slovenia to 5.4% of GDP in Estonia
Health Expenditures
Public expenditures
Private expenditures
NMS
EU 15
OECD
30
Estonia
Lithuania
Latvia
Poland
Slovakia
Hungary
Czech
Republic
10
8
6
4
2
0
Slovenia
percent of GDP
Percent of GDP, 2003
Health spending is comparable to other
European countries, and may even be on the
low side in some new member states
12
Total health expenditure (% of GDP)
10
Hungary
8
Slovenia
Czech Rep.
Lithuania
6
Poland
Slovak Rep.
Estonia
Latvia
4
2
0
0
10000
20000
30000
GDP per capita
New member states EU-15;
High-income OECD*
*High-income OECD countries are Switzerland and Norway
40000
50000
60000
Amongst a wider group of comparators
including well performing middle-income
countries health spending is not out of line
…
12
Total health expenditure (% of GDP)
10
Hungary
8
Slovenia
Czech Rep.
Lithuania
Poland
Slovak Rep.
6
Latvia
Estonia
4
2
0
0
10000
20000
30000
40000
GDP per capita
New member states EU-15;
High-income OECD*;
*High-income OECD countries are Switzerland and Norway
Middle-income high-performing;
50000
60000
Composition of health expenditures
• Health expenditures in new member states are
mainly financed from public sources, but ratio of
public-private expenditures varies
• Health expenditures in most new member states are
dominated by inpatient care and pharmaceuticals,
which account for 40% and 30% of total health
expenditures
A defining feature of the health sector in
almost all new member states is the
widespread and growing indebtedness
Slovakia (% of GDP)
6
4
-0.7
-0.7
0
-0.5
-0.2
-0.5
-0.5
-1
-1.3
2
-1.5
-1.6
0
-2
1997 1998 1999 2000 2001 2002 2003 2004e
Revenues and Expenditure
-0.4
DEFICIT
Revenues and
Expenditures
8
8.0
7.6
7.5
7.2
7.7
7.6
7.3
7.2
7.0
7.0
6.9
6.9
6.4
6.5 6.2
7.3
6.8
6.4
0.8
6.9
6.5
6.4
0.6
6.6
0.4
6.5 0.2
6.1 0.0
6.0
6.4
-0.2
5.5 -0.1
5.0
1.0
0 0.0
-0.4
-0.6
4.5
-0.5
-0.2
-0.4
-0.7
-0.6
-0.9 -0.9
-0.9
-0.8
4.0
-1.0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
HIF Revenues (left axis)
HIF Expenditures (left axis)
Deficit (right axis)
Revenues (left axis)
Expenditures (left axis)
Deficit (right axis)
Deficit
Hungary (% of GDP)
Key Expenditure Areas in the
Health Sector in New Member
States
What is driving health expenditures
in the new member states?
• Pharmaceuticals
• Hospital Infrastructure
• Salaries
• Pharmaceuticals are the single
largest cost driver in almost all
countries
• The single biggest reason for
rising pharmaceutical costs is
increase in volume of drug use
0
OECD
Japan (1)
Italy
Switzerland
Spain
Germany
Luxembourg
Sweden (1)
Czech Republic
Denmark
3.5
3.4
2.6
3.4
2.8
3.2
3.2
2.2
3.0
1.8
6.1
5.3
5.4
5.4
4.8
4.0
4.1
3.7
2.8
5.0
4.6
4.6
5.6
5.9
5.4
5.8
6.0
7.0
6.5
6.4
7.9
Drug expenditure
Netherlands
Austria (1)
Iceland
3.5
4.1
Finland
France
4.2
Canada
4.9
8.3
9.1
%
Norway (1)
Greece
6.9
8
Hungary (1)
4.3
1.8
2
Australia (2)
4
4.6
6
United States
10
Korea
12
12.8
11.4
12.7
10.2
9.6
14
Ireland (1)
The rising costs of pharmaceuticals is
not a problem in these countries only…..
Annual growth in drug expenditure and in total health expenditure, 1998 to 2003
Total health expenditure
….and neither are issues related to
increase in volume of drug use
Change in Price and Volume of Pharmaceuticals, 2002
15
10
5
0
UK
Spain
Netherlands
Germany
-5
% Change in price of existing drug
% Change in new products entering the market
% Increase in volume of prescribed drugs
Total Growth in Drug Expenditures (%)
France
Most new member states have
extensive hospital infrastructures that
are expensive to maintain
• The current oversupply of hospital infrastructure in
the new member states is a legacy from yester years
• Almost all countries have taken steps to reduce
hospitals and acute-care hospital beds, but few have
done truly enough
• The problem of debts is particularly visible in regions
with an excessive concentration of public hospitals
Salaries in the health sector in new
member states are rising faster than
the average salaries in the economy
• Since salaries account for more than 60% of
health expenditures in most countries, this
trend is increasing the pressure on overall
health spending
• The pressure of salaries has increased since
these countries joined the EU last year
Projected Pay Increases in Latvia
and Lithuania
• Lithuania and Latvia ranked first and fourth in the
world in terms of pay increases, respectively
• 2005 average projected pay increase in Latvia:
9.1% followed by Lithuania: 9.9
• Adjusting for inflation, the 2005 projected pay
increase is Lithuania: 7.7%; Latvia: 5.6%
Emerging pressures on health
expenditures
• Absorption of available and
new technologies
• Ageing and changing
demographics
Diffusion of MRI units, 1990 to 2000
Source: OECD Health Data 2004
United Kingdom
4.6
1
Switzerland
12.9
3.9
Spain
4.9
0.7
Germany
1.9
France
0.8
Canada
0.7
Austria
2000
6.2
1990
2.6
2.5
10.8
1.2
0
2
4
6
8
MRI units per million pop
10
12
14
Almost 30 percent of population in new
member states will be above 65 years of age
by 2025
Broad Age Groups, Trends and Projections
80
70
60
50
40
30
20
10
0
-10
1995
2000
2005
2010
2015
2020
Pop<15
2025
Pop 15-64
Pop>60
Demographic Distribution in the
Czech
Republic
2010
2050
It is difficult to quantify the impact that an
ageing population will have on health
expenditures…..
• But there is little doubt that an
increasing proportion of people over 65
will exert some upward pressures on
health care costs
• A critical issue is long-term care for the
very old, which can become a huge
financial burden as informal familybased care begins to decline
The Underlying Fault Lines
The demand side
Marginal costs of providing health care are very close to zero
(regardless of individual risks)
Consequence 1
Consequence2
Consequence 3
Consequence 4
Misuse of
the
solidarity
principle
Insufficient
motivation
of citizens to
protect their
health
Overconsumption
of health goods &
services,
including drugs
Attempts to
obtain extra
advantages
corrupt the
market
The supply side
Absence of fundamental market principles, pricing
mechanism, and cost-containment incentives
Consequence 1
Consequence2
Consequence 3
Consequence 4
Absence of
competition
for patients
results in
decline of
quality
Oversupply
of health
services;
inefficient
providers
are not
eliminated
High fixed
costs and
continual
growth of
indebtedness
Absence of
efforts to
improve
technical
efficiency
Health Financing
Health “insurance companies” actually “redistribution
companies”; plurality does not lead to competition; absence
of strategic financial management
Consequence 1
Consequence2
Consequence 3
Consequence 4
Limited
concern by
“insurees” of
where they
seek
“insurance”
Nothing to
distinguish
“health
insurance
companies”
(except level
of debt)
No incentives
to strive for
greater
allocative
efficiency
Absence of
ownership &
accountability
“so why
bother?”
Thinking of Solutions
The customer and half a lettuce
head…
• Complex and complicated problems
demand complex and complicated
solutions
• The problems in the health sector are
not as complex and complicated as
they seem
• Health sector problems have simple
solutions
Greater patient responsibility
Increase marginal costs for patients
(regardless of individual risks)
Step 1
Step 2
Step 3
Step 4
Very modest
copayments
at all levels
of care
Annual stoploss at the
level of the
family
Financial
transfers to
safeguard the
poor &
vulnerable
populations
Increased
information
for patients
to facilitate
informed
choice
Fixing the hospital sector
Full autonomy for all health facilities
(including financial, procurement, personnel, etc.)
Step 1
Step 2
Step 3
Step 4
Withdraw
protection,
except for
the bare
minimum in
underserved
areas
Performance
contracts for
hospital
managers
Mandatory
annual
exercise of
strategic
financial
management
Strict
solvency
requirements
and regular
monitoring
on that basis
Change incentives in the insurance
sector
Convert “health insurance companies” to health insurance
companies and allow (regulated) competition
Step 1
Step 2
Step 3
Step 4
Health
insurance
companies
to become
informed
third-party
purchasers
Solvency
rules
developed
and
regularly
monitored
Minimum
4.33% deposit
requirement
Annual public
reporting of
state of
business
Strengthen regulation and
stewardship
Ministry of Health to focus on stewardship and regulation
Step 1
Step 2
Step 3
Step 4
Develop
regulation
framework
and strong
regulatory
capacity
Enhanced
stewardship
role
Manage
patient
complaints
and redress
grievances
Facilitate and
manage
information
flows across
patients and
providers
There is no escape from greater
cost-sharing by patients….
• ….which translates to patient copayments at
all levels of care
• Copayments for pharmaceuticals are a good
and effective demand-side measure to
control unnecessary consumption
• Of course, the poor and the vulnerable have
to be offered financial protection
Managing pharmaceutical
expenditure is critical, but difficult…..
• Price controls and regulation are
necessary but by no means
sufficient
• Controlling consumption is key to
controlling expenditures on drugs
Hospital restructuring is critical in
many countries…
• Many countries have successfully
consolidated many hospitals into one,
and then reduced beds in this network
• Others have simply shut down hospitals
• Whatever works…..
But most importantly….
…..the fact that the health systems in
three new member states do not
have any debts is remarkable, and it
is worth exploring why the same set
of issues that have been the bane of
fiscal balance in some countries
have not been a problem for others
These three countries are
Estonia, Slovenia and Latvia……
•
•
•
•
These countries face the same financial
pressures, but have found simple but effective
ways to address these problems.
Slovenia found the answer in good governance,
close scrutiny and informed oversight.
Estonia found the solution in strict adherence to
financial rules and in maintaining financial
reserves to meet unforeseen expenditures.
Latvia contained its expenditures to the
resource envelope, and simply did not spend
what it did not have.
The most important message from the
experience of these countries is that there
is no substitute for fiscal discipline…..
• …..and that the best way of not running up arrears
is to stay within the available resource envelope.
• The resource envelope available for the health
sector is usually sufficiently elastic to
accommodate expenditures such that fiscal
balance is maintained
• Such accommodation is possible and sustainable
only if backed by a fundamental adherence to
good budgetary practices and fiscal prudence.
In brief…
To recap….
• The heavy indebtedness in the health system in
many new member states presents a huge challenge
for the fiscal health of these countries
• These countries cannot carry the health sector debts
for long
• Main pressures on expenditures come from
pharmaceutical expenditures, rising salaries,
expenditures associated with maintaining the existing
hospital infrastructure
• Potential expenditure areas include ageing
populations and proliferation of expensive medical
technology
• Social health insurance alone will not be
able to bear the full costs of medical care
in these countries
• Need a combination of stricter supplyside measures – such as hospital
restructuring and controlling drug costs
– and demand-side measures – such as
greater patient responsibility for own
health and greater patient contributions,
including cost sharing for
pharmaceuticals
Managing Health Expenditures
in New EU Member States:
Options for Reforms
comments and suggestions:
[email protected]
Views expressed are the author’s and do not necessarily reflect those of the World Bank