The year after Kobuleti: What difference does it make?

Hedfh R&y, 19 (1991) 167-176 01991 Ehvicr SciencePublisbcrsB.V. All rights reserved. 0168-8510/91/$03.50

167

HPE 00445

The year after Kobuleti: What difference does it make? Alexander Telyukov’ and Philip Cape? ‘Institute for Economic Studies, State Planning Committee, Moscow, U.S.S.R. and ‘The Codman Research Group, Lebanon, New Hampshire, U.S.A. ?? Accepted 15 August 1991

Summary Following end pursuent to a conference held in Kobukti, Soviet Georgia in April, 1999, a peper doscribing proposed principles for iegisktion estebbshing ??heelth inrurenu system for the U.S.S.R end Union Repubtks wes publiehod. It propoesd supplementing the existing publicly financed msdkei ten systsm with a system of regionally bared ‘health insurence’ funds, es well as formelly recognized direct payments to health cere provtders. While creating the opportunity for insumnce funds which were to be regioneliy based, the systsm wes to be csntreily dlrectsd. Since the publicetion of that peper, the reforms tt envisions hevo progressed more slowly then expected. This is dus to et lees1 three fectors. First, the generel stete of the Soviet economy, coupkd with a strengthening of the movement towerd greeter autonomy for the Soviet Republics end en eccompenying nluctencs on the pert of the Republics to contribute to the Union budget, hes resulted in a greeter reduction of thet budget (end a grsetsr budget defklt) then ?? nudpeted. Sscond, due in pert to perverse financial incentives, the cepecity of the Soviet heetth cere systsm to increase production, even if the financial resources were eveiieble, is limit&, end has deterioreted during the pest yeer. Third, the petisncs of hedth cem worken with their working conditions is weering thin, resulting in less willingness on their pert to cooperate with anything less then totei end fundementel reform then her been the case in the pest At this point, It appears thet any reform of Soviet heehh cere will emphasize autonomy et the levels of the Republks, end a diminution of centrei power end control. Thers is a growing feeling the1 anything rhort of a signigcent improvement in the geneml Soviet economy linked with tote1 reform of heelth cere financing and delivery will fail to reverse the deterioration of the Soviet health cars system. The authors am founding members of the U.S.S.R. - U.S.A. Health Policy Exchange Initiative. Address Ibramespondence: Lebanon, NH 03766, U.S.A

Philip Caper, M.D., The Codman Research Group, 444 MT. Support Rd.,

168

Soviet health cam; Health Insurance; Eastern Europe; Kobuleti Confemnce

The Kobuleti conference In April, 1990, a conference was convened in Kobuleti, Soviet Georgia, for the presentation and discussion of a proposal for restructuring health care within the Soviet Union. It was attended by about 130 Soviet economists and health ministry officials, as well as a small group of American advisors. A description of that conference has been reported elsewhere [l]. This paper attempts to describe developments in Soviet health policy during the interval since that conference.

An insurance-based system of health financing: the original concept and its evolution In October, 1990, a draft law entitled ‘The Principles of Legislation of the U.S.S.R. and Union Republics on the Financing of Health Care’ was published, largely based upon the discussions held during and generated pursuant to the Kobuleti conference. It proposed a restructuring of the financing of Soviet health care, and would make financial resources available from three separate sources [2]. First, there would be a network of health care funds, derived from governmental budgets at the union, republic, regional and district or town levels, raised on a capitation basis, and placed in a dedicated trust fund. These funds would be used to cover retirees, disabled workers or workers’ survivors,, students, families with four or more children, government employees and other groups defined to be eligible. It was hoped that the trust fund mechanism would protect the health care budget from the vagaries of short term shifts in political priorities. Second, a network of ‘insurance institutions’ would be created, financed by payroll tax contributions from employers, employees and self employed persons. Premium levels would be determined by disease risk, especially those associated with hazardous working conditions. Negotiated cost sharing with employees, perhaps based upon lifestyle, would be permitted. Mandatory coverage would include preventive, maternity and long-term care, as well as other types of inpatient and outpatient services. Supplemental insurance would be permitted for amenities (e.g., private rooms, etc.), as well as access to research clinics and to ‘non-traditional’ medicine. Third, payments would be made directly to the providers of health care services by employers and individuals. Insurance carriers would be defined as ‘non-profit’ in order to limit their rates of ‘retention’ or profits, and to control certain investment practices.

169

Carriers would receive a charter covering a specific territory, thereby granting them monopsonistic status within a particular region. Insurance funds would then be permitted to negotiate with providers of services based upon price, access and quality, thus establishing a sort of internal competitive market on the delivery side, permitting the withdrawal of much of the presently existing central regulatory control, while preserving regional monopsonies on the fmancing side. Up to 15% of Soviet health spending would continue to be provided from general revenues, unrelated to health insurance. These funds are intended to provide support for health promotion and disease prevention activities, subsidies to disadvantaged areas, disaster relief, research and development, pilot projects and other programs of national priority. The ultimate goal of the proposed new pattern of financing would be to increase both the volume and quality of medical care by raising additional funds, decentralixing health policies and administration, and improving the morale of health care workers. Another important goal would be to increase the responsibility of employers and individuals for healthier lifestyles, and for better occupational and environmental conditions. The reform of financing would be accompanied by major changes in the delivery system [3]. The original intent of the task force was to draft specific legislation governing the proposed new system. This objective was abandoned after discussions with the Republics in favor of the more generic ‘principles’ produced last October, leaving many of the plan’s details to be determined at the Republic, regional or local levels, in order to account for the large differences among the Republics. For example, in the southwestern Republic of Maldova, only about 48% of the population would be covered by the government program of health insurance, whereas in Central Asian Tadzhikistan, it would be closer to 69% due to the extremely high proportion of the population out of the workforce. Other large differences among regions of the Union in per-capita income and the availability of health care resources also make such decentralization of decisionmaking very desirable. These differences not only make variations in the implementation of health insurance necessary, but will also require differences in the period of transition to the new system. So far, the reform has gone much more slowly than anticipated. There are a number of reasons for the slow pace of development of health care reform. First, there has been a deterioration in the general Soviet economy, triggering intense competition for budget funds. This, together with a growing movement toward autonomy at the Republic and sub-Republic levels, has resulted in an increasing reluctance of the Republics to contribute to the Union budget to the degree they were expected to do so. The year 1990 produced a 2% decline in the Soviet GNP. The officially reported reduction in the Soviet budget deficit from 80 to 58.1 billion Rubles (11.4% of the budget outlay), is somewhat deceptive, given the dramatic (1.5 times) increase in the amount of money in circulation, and an inflation rate of

170

about 20%. It would be reasonable to assume that the true budget deficit is in the range of 20%. The budget deficit reduction strategy for 1991 seems to lie in squeezing more money from the Republics. At the end of 1990, every one of the Republics signed an agreement with the central government creating an All Union Fund for Economic Stabilization. It stipulated the specific financial contribution of each Republic to the Federal budget. However, there has been a failure of implementation of that agreement thus far. During the first two months of 1991, there was a shortfall in budgetary transfers of 43.5 of the 46.1 billion Rubles agreed upon. The situation improved somewhat in March, but about two-thirds of the agreed upon amounts remained unpaid after the first quarter of 1991. Despite a 2-fold increase in business tax revenues to the Republic’s budgets during the first quarter of 1991, the flow of those revenues from the Republics to the center decreased by 72% from the same period of the previous year. It is clear that tensions between the Republics and central government over the issue of decentralization are growing. Second, regardless of the ability of health care financing agencies to raise resources, there was a diminution in the ‘convertability’ of those financial resources into real goods and services. For example, during 1990 there was an acute reduction in the supply of medical equipment and pharmaceuticals. Both industries seem to be completely unprepared for movement toward a market economy. Tight central budgetary and price control in these sectors of the economy were tolerable as long as such controls applied equally to the price of materials necessary for production, as well as those of finished goods. However, during the past year or so, suppliers of raw materials have been permitted to increase their prices, but suppliers of finished medical equipment and supplies have not, due to the ‘social relevance’ of their products. Thissqueeze has induced the producers of medical equipment, supplies and pharmaceuticals to discontinue the production of loss producing items. Thus, an already ill equipped and supplied health care equipment sector has become even more severely squeezed than before. For example, it is estimated that only two percent of outpatient clinics and six percent of hospitals are equipped with ultrasound equipment, and only five and thirteen percent, respectively, are estimated to be able to perform endoscopy. There are also severe shortages of X-ray and lab equipment, as well as rehabilitation, dental and electrocardiographic equipment. As assessed by the Soviet Health Ministry, more than 70% of the domestically produced medical equipment is substantially inferior in functionality and reliability to that available on world markets [4]. The situation with respect to pharmaceuticals is just as bad. The 70% increase in wholesale prices for pharmaceutical inputs which took place in 1990 could not be passed through in retail prices. Pharmacy ‘profits’ vanished, and a third of them could not cover their costs in 1990, while the remaining two-thirds saw profit margins shrink [5]. This system has accentuated the

171

already serious problem of pharmaceutical shortages. Other factors in the general environment have acted to further exacerbate this situation. In 1989 1990 14 facilities which supply basic substances to the drug industry were either shut down or their operation was restricted for violating pollution abatement rules. These shutdowns were also followed by a number of chemical, steel and non-ferrous metal-making plants, also producing inputs for the drug industry [6]. For 1991, pharmaceutical suppliers have agreed to provide only two-thirds the volume of goods delivered to the pharmacies in 1990. The current year (1991) is expected to go down in history as a year of drug-supply catastrophe. Third, a sense of rebelliousness on the part of health care workers, including physicians and nurses, the cornerstone of stability within the health care sector, has developed during the past year. This rebellion, against low wages, social vulnerability and inhumane labor conditions, has taken two forms. First, many health care workers are fleeing from state run medical institutions - some by leaving the country, others by entering ‘free-lance’ practice or becoming part of medical cooperatives. The second manifestation of this rebellion is open revolt against the system. In 1990 health professionals displayed an unusual willingness to clash with the government. The following excerpt from a speech by Mr. T. Surkov, the Chair of the Zclenograd Medical Workers Association, documents the typical mood of 1990: ‘We have been waiting for 73 years for improvement in our living conditions. We came through ‘mature socialism (the offtcial self-comforting definition of Brezhnev’s era, forgotten immediately after his death), we were standing on ‘the threshold of conunun~m’ (another ideological cliche, typical of Soviet propaganda newspeak). Our current preoccupation is how to survive under ‘renovuterf or ‘hummte sociuksm’. Medical workers, unite! We have to set our minds on social and economic self-defense. Strikes are imminent. Our economic claims got a response from neither the government nor the Supreme Soviet. In that case we have to reinforce economic claims with political demands. The government ruined the nation. Medical workers, we call you up to actively join in the fight for your rights’ [7J. In December 1990, the first All-Russia Convention of the Coordinating and Strike Committees of the Health Workers Labor Union was held in Moscow. It approved guidelines for coordinated action involving strikes and other forms of labor disputes. The Declaration of the Health Sector Community of Russia adopted at the Convention summarized the problems currently being experienced by the Soviet health system in a pathetically explicit way: ‘Soviet medicine is standing on a threshold over which it would endanger people’s health... The genetic potential of the nation is at stake’ [8].

172

On distant approaches to reform The combined effect of the trends described above left no time and room for further deliberations on how to go about reforming the Soviet health system. Yet, the urgency of doing so has increased. Only a year ago, the comprehensive and urgent revision of the system’s economic and administrative basis was considered optional. Currently, there is a strong feeling among health offkials, local authorities and the broad public that radical reform is a must. Growing awareness of the urgent need for reform does not mean that it will happen. As a matter of fact, current health policy is characterized by three approaches: First, cosmetic renovations that do not infringe upon the interests of the health bureaucracy. Minor tradeoffs are implied here in order to preserve the overcentralimd pattern of medical care delivery. Recently undertaken minor shifts in the administrative structure of the health sector provide a good instance of ‘non-invasive’ reforming that has little resemblance to true changes in the system. In October 1988 the health boards of local governments were dissolved in rural districts and towns with populations below 1 million (except in the capital cities of the Union Republics). The number of personnel employed by the U.S.S.R. Health Ministry was reduced by 20 percent, and that of the Republics’ health ministries by 30-50 percent [9]. It is important, though, that the scope of centralized control exercised by these ‘renovated institutions remained unchanged. Second, expansion of the authority of service providers over decisions on how to allocate the available resources is being attempted, but with sources and mechanisms of fund-raising remaining intact. Ekonomic experimentation in the cities of Leningrad, Kuibyshev and the Kemerovo region, as well as a number of territories in the Republic of Kazakhstan and a small percentage of institutions in Moscow are examples of administrative and managerial innovation as the main vehicle for improving the effectiveness of the health system. Although no additional money has been provided, regional governments were given substantial powers to allocate available funds on a decentralized basis, i.e. without regular administrative pressure by central authorities. In this experiment local hospitals, emergency stations and other medical facilities supposedly commit themselves to the policies of the regional fundholding center of outpatient care - the polyclinic. The latter receives money from the budget on a per capita basis. The subordinate medical institutions are reimbursed by the polyclinic according to the number of patients treated and the quality of care provided. Regional DRG’s and schedules of fees have been designed to facilitate economic relationships between polyclinics and other providers. At the end of the year, polyclinics present their spending record. If the initial allocations were underspent, local health status indicators are scrutinized. If they improved, the savings are considered reasonable. Medical facilities are

173

allowed to retain the savings and spend them as cash bonuses. For example, the staff of maternity homes would be rewarded for lower infant mortality; doctors in polyclinics for lower incidence and shorter duration of temporary disability among their patients; hospital workers for fewer cases of in-hospital infection, and all of the above for a reduction in the number of complaints from patients. If health status indicators deteriorate, there would be no incentive payment, and even basic salaries would be affected. Patients are allowed free choice of a physician and are welcomed to participate in quality assessment. In order to generate savings, health care facilities seek to use the most costeff&nt strategies of treatment and health care delivery. Emphasis is placed on preventive care as the lowest cost. Regional medical associations, involved in the experiments, boosted the development of outpatient care, including so called consultation and diagnostic centers, walk-in units in hospitals, outpatient surgery, and the like. Patients admitted to a hospital are treated much more intensively now than before. In the areas involved in this experiment, the average length of stay has been reported to have declined by 15 percent in two years. In the Kemerovo region in the Urals, the total number of beds began to decline for the first time in the postwar history of the Soviet health care system. The average monthly wage of medical personnel increased almost Zfold in that region while total health employment declined by 7 percent [IO]. In Moscow, direct payments from enterprises were permitted, and have added 5 to 7 percent to the budget funds allocated to health care in Moscow. This money was intended to be spent on the provision of better and/or additional services to the employees of the donating businesses. Encouraging as it may seem, economic experimentation in the health sector remained sporadic and has not resulted in restructuring of the entire system. Cost-accounting practices, a sounder resource allocation, and cash and in-kind bonuses for favorable trends in health status indicators were not reinforced by additional funding. With no supplementary money in sight, those experiments boiled down for the most part into unhealthy attempts to more fairly distribute inadequate salary funds. Conflict arose between polyclinics and in-patient institutions, hospitals and paramedical units. All of them were seen trying to save on treatment and expenses, potentially damaging their patients’ health. It made it clear that innovative efforts in allocating resources must go hand in hand with creating a more generous and stable financing system. Third, large-scale financial and administrative reform, of the type described earlier, has been proposed. The pace of this reform is slower than had been earlier hoped, for the reasons outlined above, as well as others.

174

A more restrained approach toward reform A more restrained approach toward market mechanisms in the health care sector has resulted from extensive consultations with U.S., Canadian and European health policy analysts. The authors of the reform proposal still believe in the creation of a much more competitive pattern of raising and allocating funds within the health care system. The Soviet health system must overcome its alienation from the economy and economics. The option for medical care providers is either to acquire a more economically rational behavior or to be stripped of resources by their counterparts in the goodsproducing industries. Social service providers must be permitted to introduce prices that would allow them to operate on an economy-wide scale and thus protect the respective sectors from the diversion of resources to the goodsproducing industries. That is why the national average insurance premiums in the reform proposal were calculated in such a way as to permit a 25 percent margin for the entire health sector. Clearly, a considerable number of relatively ineffective facilities would go out of business under the proposed reforms because of their failure to compete for contracts offered by insurance carriers. The remaining viable health care providers would generate enough revenue to become financially self-sufficient. Unfortunately, the status of self-governing ‘non-profit’ social service institutions remains undefined in the Soviet economy. That requires the authors of health reform proposals to elaborate on this issue from the beginning. This work is currently in progress. The concept of non-profits is likely to be designed in a more restrictive way than in the United States, particularly with regard to investment practices and the regulation of the upper limit to profitability. A more balanced approach would now prevail with regard to health insurance proper. The original infatuation with the idea of unrestricted competition among the insurance funds seems to have been tempered. A monopsonistic approach is being considered more seriously, and may prevail in any final reform package which is eventually implemented. The choice between public and the private systems of collecting and administering insurance funds would be left to the discretion of the Republics and to the regional governments. Quasi-government organizations might become a reasonable trade-off for at least the initial stage of system implementation. As to the organization of care delivery, there is less enthusiasm than initially with respect to the introduction of the general practitioner as a gatekeeper. There is a long way to go before a doctor trained and employed in the Soviet Union will be able to perform as a GP. There are at least two reasons for being pessimistic on this account. First, professional skills and experience are too poor in quality and limited in scope to be applied in the way the status of GP requires. Second, outpatient care is highly socialized. The network of polyclinics cannot be replaced by general practitioners’ private offices in the near future. Group practice might be reasonably chosen as a transitory form of

175

organizing outpatient care and motivating the front line of Soviet medicine toward more responsible and productive performance. Unlike polyclinics, group practices would be teams of physicians sharing leased or redeemed premises and equipment, hiring assistants, and serving their patients under contract to insurance carriers. The personal income of a physician in the group practice would be a part of the net revenue of the entire team.

Beyond the reform proposal The Draft Fundamentals of Legislation On The Financing Of Health Care were submitted to the Health Committee of the U.S.S.R. Supreme Soviet last fall and were published for open discussion on October 26, 1990. The document was supposed to be included in the agenda of the spring (1991) session of the Soviet Parliament. In reality it has never come to official hearings either at the meetings of the Health Committee, or at the Supreme Soviet’s Plenary Session. Overwhelmed by the political upheaval and discouraged by the rebelliousness of the Republics, the legislature eventually gave up on its law-making activities, other than those originating in presidential decrees. Under the current circumstances, the effort of pushing health financing reform through the corridors of power will undoubtedly be switched from the All-Union to the Republics’ parliaments and government agencies. The Russian Federation looks very promising in this sense. The current Russia’s health minister (Mr. Kalinin) sided with the concept of health insurance from the first day of the existence of the Task Force, when he was a high ranking official at the U.S.S.R. Health Ministry. As the political influence of Russia’s reform-oriented government grows, so does the support for any project that would contribute to decentralization in the economy and budget appropriation. Health financing reform, if implemented in a consistent way, will obviously provide an effective method of biting a piece out of the powers of federal government.

References 1 Robbins, A., Rowland, D. and Caper, P., ‘Letter from Moacouw - Financing Medical Care in the New Soviet Economy’, Journal of the American Mcdkal Association, 264:9:297, September 5,199O. 2 Ryan, M., ‘Health Care Insurance in the Soviet Union’, BMJ, 302:170:1990. 3 For more dctaib about the fmaocial and administrative aape& of the reform proposal and its implications for care delivery IECZ A. Tclyukov. A Concept Of Health Financing Reform In The Soviet Union, International Journal Of Health Service+ 3 (1991) 493-504, in press. 4 Soviet Health Ministry, Proposals on the Draft Plan and the Budget for 1990, MOSCOW,1990, Staff paper, 1989, pp. 15.

176 Meditsimkayr Gaze& Dazmber 28,1991, pp. 1. Meditshkaya Gaze& December 21,199O. MaIibbkaya Gaze& December 2.1990, pp. 1. Ibid. U.S.S.R. Health Ministry, Proposals On The Draft Plan and the Budget for 1990, Moscow, 1989, Staff Paper, pp. 3. 10 U.S.S.R. Health Mini&y, 1990 Annual Report, Moscow, 1991, Staff Paper, pp. 12. 5 6 7 8 9