Challenges In Financing An Efficient Health Care System

“Health Sans Frontieres” European Health Forum, Gastein 2006

Armin FidlerSector Manager for Health, Nutrition, Population,

Europe and Central AsiaThe World Bank

2

Why Everyone Talks About Health Financing ….

• Health and Economics – Why the health sector takes center stage:– Efficiency of public spending: Health as a large public outlay– Social safety nets, poverty, catastrophic events:

• Poverty as a determinant and an outcome of ill health– Labor market implications: Health as an engine of economic

growth?• Health as a commodity and “luxury good”?

• Major Cost Drivers as experienced during the transition period in NMS– Hospital Infrastructure– Pharmaceuticals– Staff salaries, labor mobility– Medical Technology

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How To Go About Containing Costs?

• “Control knobs” to modulate health expenditures – Supply side: Health Technology Assessment (HTA)

• Master Planning for Infrastructure and equipment

• Demographic, epidemiological, economic factors

– Demand side: Demand modulation• Co-payments

• OTC pharmaceuticals

• But also: “supply induced demand” – critical role of physicians and the availability of technology.

4

Health Care Spending In The New MS• Varies from 8,1% of GDP in Slovenia to 5,4% of GDP in Estonia

Health ExpendituresPercent of GDP, 2005

02468

10

Slo

veni

a

Cze

chR

epub

lic

Hun

gary

Slo

vaki

a

Pol

and

Latv

ia

Lith

uani

a

Est

onia

OE

CD

30

EU

15

NM

S

per

cen

t o

f G

DP

Public expenditures Private expenditures

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Examples from the EU NMS

• Recent reforms: CZ, EE, H, LV, LT, PL, SK, SI (+RO, BG)

– carried out health sector reforms of variable scope – but no

discernable trend as far as directions and results.

• Health expenditures: not out of line compared to OECD, but

sector in debt where expenditures consistently exceed

revenues derived from payroll tax and budget allocations.

• Near term outlook: Drive for modernization, upgrading of

technology and legacy of past creates pressure on expenditures

and mandates to raise extra revenue and to contain costs.

6

Economic Growth: Strong growth has partially cushioned growth of health expenditures

Growth Rates, 2003-2005

02468

1012

2003 2004 2005

Source: Eurostat

7

Death Rates From Main Causes• Scope for reducing mortality?• Lifestyle – public health (primary+secondary prevention)• Role of investment in evidence-based treatment protocols and modern technology?

0200400600800

10001200

Cze

chR

epub

lic

Est

onia

Hun

gary

Latv

ia

Lith

uani

a

Pol

and

Slo

vaki

a

Slo

veni

a

EU

-15

aver

age

SD

R p

er 1

00,0

00

All Causes Circulatory System Cerebro-vascular

Source: WHO-EURO, HFA Database, 2005

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30 Percent Of Population In NMS Above 65 Years Of Age By 2025

Broad Age Groups, Trends and Projections

-10

0

10

20

30

40

50

60

70

80

1995 2000 2005 2010 2015 2020 2025

Pop<15 Pop 15-64 Pop>60

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Ageing And Changing Demographics• Difficult to quantify the impact that an ageing population

will have on health expenditures – Bulk of health expenditures will still occur in last year of life– But increased life expectancy despite multi-morbidity will take toll

• 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 significant financial burden as informal family-based care begins to decline– Few NMS have drawn up credible long-term strategies for LTC– EHFG Session on Saturday, sponsored by EU and WB!

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Demographic Shift Caused By Falling Fertility Rates And Increasing Longevity

Total Fertility Rates 1980-2025

1

1.2

1.4

1.6

1.8

2

2.2

2.4

Hungary

Croatia

Czech

Romania

Slovak

BiH

Slovenia

Estonia

Latvia

Lithuania

Bulgaria

Life Expectancy 1975-2030- Men

55

60

65

70

75

80

1975-1980 2000-2005 2025-2030

Czech

Estonia

Hungary

Latvia

Lithuania

Poland

Slovakia

Slovenia

Life Expectancy 1975-2030 -Women

65

70

75

80

85

1975-1980 2000-2005 2025-2030

Czech

Estonia

Hungary

Latvia

Lithuania

Poland

Slovakia

Slovenia

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Principle Challenges for a Sustainable Health Financing System

(i) Hospital Infrastructure

(ii) Pharmaceuticals

(iii) Staff salaries

(iv) Medical Technology

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(i) Hospital Infrastructure• Extensive hospital infrastructures expensive to maintain

– many structures not appropriate (location, use , size)

• Oversupply of hospital infrastructure in NMS is a historic legacy –

– but also highly prevalent in OECD

• Almost all countries have taken steps to reduce hospitals and

acute-care hospital beds

– but there are only few success stories.

• The problem of debts and contingent liabilities in countries with

dominant public hospital sector

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(ii) Pharmaceuticals

• Drugs and medical devices seem to be the single largest cost drivers in most countries

• Rx total cost = Price x Volume• Questions related to:

– Extent of publicly financed benefit vs. OTC– Role of co-payments to control prescription and

consumption– Clinical practice guidelines and prescription practices based

on evidence– HTA and pharmaco-economics

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(iii) Human Resources - Wages• Salaries account for more than 50 - 60% of health expenditures in most

countries, this trend is increasing the pressure on overall health spending

• The pressure on salaries has increased in EU NMS

– Health sector salaries in NMS rise faster then the average salaries in the economy

– from low starting point

• Example: Lithuania

70% of medical staff leaving Lithuania indicates “higher salaries” in the target

country as reason for leaving, 50% leaves because of the “higher living

standard” and 40% because of “better career possibilities”.

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(iv) Medical Technology

• Absorption of available and new technologies puts pressure on health expenditures

• Modern health care is most information and technology-intense industry – difficult to saturate!– ECA countries – transformation from pre-transition

production model to modern health delivery system – not fully concluded yet, despite 15 years of reform and investments

– Therefore much room for either big mistakes and “dead ends” but also opportunities to leapfrog to leadership position – avoiding mistakes of others.

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Diffusion Of MRI UnitsSource: OECD Health Data 2004

1.2

0.7

0.8

1.9

0.7

3.9

1

10.8

2.5

2.6

6.2

4.9

12.9

4.6

0 2 4 6 8 10 12 14

Austria

Canada

France

Germany

Spain

Switzerland

United Kingdom

MRI units per million pop

2000

1990

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Health Technology Assessment (HTA)

• “policy research that systematically examines short- and long-term consequences of health and resource use, of the application of a health technology, a set of related technologies or a technology related issue”

• “a bridge between the world of research and the world of decision-making”

• Together with evidence-based medicine (EBM) and clinical practice guidelines (CPG) it builds a body of best practice initiatives

– Session on HTA and Quality of Care (Jan Bultman, WB) at EHFG

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Objectives Of HTA

• Assist decision makers in deciding which technologies to adopt (C-E, certificate of use, etc.)

• Encourage the appropriate use of health technology, based on established evidence

• Provide impartial comprehensive information through the collection and analysis of information concerning the effectiveness and cost of health technology and health impact

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Evidence When HTA Used Effectively

• Provides information from an independent, impartial perspective

• Supports and assists decision makers in making informed policies and decisions in health care

• Is an essential element of a health care system that seriously

• Creates a bridge between researchers, decision-makers, health care providers and the public

• Leverages health research investment in order to create a cost-effective health care system

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Health Sector Modernization – Recalibration of Financing And...

• MoH stewardship – intergovernmental action (MOF – HIF)- Final goal must be population health outcomes - Payer could efficiently purchase “wrong” health service!

• MOF – HIF: Difficulty in many countries to sustainably raise revenues for health:

• informal sector, evasion of tax liability, unfunded mandates, HIF mandates

• Insurance and payment reform- Share of public vs. private and experimenting with different

models (Single payer, earmarked taxes, MSAs, regional funds, etc)• Human Resources critical for the entire system:

- Need to focus on evidence-based medicine and public health, management + economics)

• Information Technologies- Most critical for payers and providers, but most difficult to

procure and run effectively – constant source of corruption scandals