Health Financing Challenges in the Baltic States

Toomas PaluSr. Health Specialist, World BankMember of Management BoardEstonian Health Insurance Fund

Health financing reforms include to a various degree social insurance

elementsEstonia

• Health Insurance Act – 1991, 2002• Earmarked 13% payroll tax• Estonian Health Insurance Fund (EHIF Act 2000)

Latvia• Government decrees 1993, 1997, 1999• Earmarked 28.4% of income tax• Latvian State Compulsory Health Insurance Agency (Gov agency)

Lithuania• Health Insurance Act 1995• Earmarked 30% of income tax, 3% payroll tax• Administered by State Patient Fund (Government Agency)

The main objective of introducing health insurance in the Baltics was

…

… to ensure increased and sustainable level of health

financing

powered by physician lobby.

Health expenditures: appropriate level? how sustainable? *

* OECD and EU candidate countries, data from 1998-1999, OECD, WHO

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Explanation of different health financing reform outcomes

Estonia has higher level of health financing because health insurance is the main source of public health funding

• Formalisation of economy, gradual decline of “grey” economy• Productivity improvements• Average salary growths higher than economy in general

In Latvia and Lithuania large part of health financing is determined through political budget negotiations, but …

• Health sector neither EU nor NATO priority• Health issues only now becoming part of political (election) debates

Health financing information is not comparable and comprehensive• Standard (OECD, WHO) health accounts are assembled only in Estonia• Latvia accounts only for public sources, Lithuania assembles its own

national health accounts

HI share of overall health financing. Pooling of funds.

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Estonia Latvia Lithuania

Sources of funds

Other

Households

Social Insurance

Government0%

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100%

Estonia Latvia Lithuania

Financing agents

Is Estonian narrow tax base sustainable in long term?

Solidarity in Estonian health insurance

state3%

13 % tax45% of insured

no contri-butions

52% of insured

Cost pressures

Aging population• average life expectancy is increasing• birth rates below population replacement rate

Ever-emerging new high-cost effective medical technologies• high cost of pharmaceuticals• situation worse for economies of transition because they

lag behind in introduction as well as penetration rates of already existing medical technologies

Pressure from health care provides to increase reimbursement rates• low salaries of medical personnel• unfunded capital costs

Increased expectations of citizens

Costs of various benefits to EHIF

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1996 1997 1998 1999 2000 2001 2002

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Pharmaceuticals Sickness benefits Health services

11%22%

13%0.2%

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5.3%

74%63%

13%21%

42%

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5.8%

Examples of cost pressures in Estonia

Cost million EEK

% of EHIFsecondary care budget

Queues Joint replacement surgery - 3821 persons 134 6.4%Cataract surgery - 4670 persons 30 1.4%

New high tech, not included in the benefit list yetinner ear prosthesis 5 0.2%Inplanted cardiac defibrillator 30 1.4%PCR test for donor blood safety 5 0.2%

Reimbursement rate rise demanded by health providers 250 11.9%% of pharmaceuticals

budgetNew drugs not include in the reimbursement list

Fabry disease – Fabrazyme® - 4 persons 12 1.6%Leucemia – Gleevec ® 30 persons 15 1.9%

Regular intake of ordinary high blood pressure drugs 200 25.9%

Solutions to cost pressures

More money for health care!?• Limited by overall strength of economy • Attract private financing - investments, cost sharing, private insurance; PPP -

public-private-partnerships

Effective and efficient use of scarce resources• Keywords: cost-effectiveness, appropriateness, needs, incentives, evidence base,

transparency

Make choices• What benefits are covered by social health insurance

Cost-sharing: regulating user charges

Estonia• Co-payment of Euro 3.2 for outpatient specialist consultation• Co-payment of Euro 1.6 per hospital day up to 10 days (Euro 16) per

admission, adjusted annually according to inflation• Few exemptions• Reasonable user charges for above standard accommodation• Patients are charged full cost if the want to by-pass queues

Latvia• Euro 0.8 for outpatient specialist consultation• Euro 8.4 at hospital admission, Euro 2.5 per hospital day up to Euro 25 per

admission • Extensive exemptions

Lithuania• Government approves a list of services that are paid out of pocket

Making choices about HI benefits

None of the countries has been successful• obvious choices have been done – cosmetic surgery,

etc. have been excluded from the public benefits packages

• politically very difficult decisions, not popular among electorate

• clear criteria are not defined

Technical solutions for better use of scarce resources

International evidence base

Implementation in Baltics

Reference pricing for reimbursable pharmaceuticals Pharmaceutical reimbursement budgets for physicians +/- Rational prescribing Global budgets and case-based reimbursement (DRGs) for hospital care

Competitive contracting +/- +/- Use of health economics in decision making +/- Optimisation of hospital infrastructure Analysis of needs and needs based planning +/-

Needs assessment and contract planning in Estonian health insurance fund• Untying contract planning from historical hospital services

production, planning according to patients’ needs• Analyze service utilisation variation among 7 population

pools as a proxy for need•utilisation of data warehouse concept

• Separate supply induced demand from medical need as much as possible

•consult with GPs • Analyze queues – integrate results• Budget planning and scost-and-volume contracts

according to needs assessment results

Small area variation in the utilisation of dermatology services, Estonia 2001

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HK (All) Arv (All) Nimi (All)

Sum of Ülearv 100 000 kindl kohta

Põhieriala

Rtüüp2

Monitoring waiting times

Prioritizing queues in Estonia

Application of prioritization protocols• joint replacement and cataract surgery queues• evaluate need, e.g.

- physical impairment (visual aquity, functional mobility)

- pain- ability to work, give care to dependents, live

independently• protocols based on New Zealand experience

People with higher needs needs wait less

Optimisation of hospital capacity in Estonia

Implemented through• Rational “Hospital Masterplan 2015”• Legal hospital reform: incorpororation under private law as foundations

(trusts) or joint stock companies under public ownership• Hospital mergers – internalise efficiency problem to hospital

managementIn 2001 EHIF had 17 hospital contracts in Tallinn In 2002 EHIF has 4 hospital contracts in Tallinn

• Supported by EHIF contracting• Development of conceptual solution for long term care• Solving health sector investment financing problem

  1993 1999 2001 2015

Number of hospitals 115 78 67 13

Number of hospital beds 14 377 10 358 9160 3500

ALOS 15.4 9.9 8.7 4

Hospital capital investment financing reform

Key reform features• capital cost will be included in the EHIF price in 2003• hospitals will pay capital charge on assets they have

received free of charge from the State• hospitals will make their own investment decisions• for expensive investments “certificate of need” is

required, issued by the State Health Board

This policy will be additional incentive for divesting excess hospital buildings and equipment