Curing Sick Health Care Systems in Transition Countries
by George Shakarishvili

The transition countries once had a socialist health care system that, for all its weaknesses and ideological fallacies (it was geared toward keeping workers fit and healthy), offered universal, and—at least on paper—free, outpatient and inpatient treatment. With the fall of communism the challenge became how to apply both the principles of solidarity, (that is, treating the poor for free), and efficiency. Governments are struggling to meet both requirements. The following articles rely heavily on a survey titled "Who Cares? Health Care Reform from the Bering to the Adriatic," published in the Spring 2003 issue of Local Government Brief, a quarterly publication of the LGI, Budapest, Hungary (see http://lgi.osi.hu/publications/default.asp?id=236).

As a result of large-scale economic decline in the former communist states of Central and Eastern Europe and the former Soviet Union, major indicators of the health status of their populations and of their health care systems have shown dramatic deterioration. Health care reform should increase efficiency while simultaneously maintaining health systems’ solidarity and universality.

Funding for the heath sector in the Soviet system was derived exclusively from state revenue sources. The state owned and ran health facilities and medical personnel were considered to be civil servants. Funding was provided to health facilities based on fixed norms, and the management of health care institutions had little control over activities and inputs.

Mixed Bag of the Past

Universal entitlement of the entire regional population to a full range of health services was an undeniable achievement of the socialist regime and its health care system. Structurally integrated networks of hospitals, outpatient clinics (polyclinics), and other health facilities provided universal access to curative health services. Outside urban centers outreach facilities, feldsher stations (facilities employing medical practitioners who lacked graduate qualifications and were trained to work in rural areas), ambulatory clinics, and rural hospitals provided health services. By the 1970s health sectors across the region were well endowed with basic physical infrastructure, trained staff, and education programs compared with countries with similar per capita incomes, or even with highly industrialized countries.

Over time, however, the system’s long-term sustainability faltered as supply-driven development of the medical infrastructure failed to meet demand. From 1980 to 1998 most CIS countries had, on average, 850 hospital beds per 100,000 people, while CEE countries maintained 700 hospital beds per 100,000 people, compared with the EU average of 550. During the same period hospital admission rates varied between 20 and 22 per 100 people in the CEE countries and the CIS, compared with 16 in the EU, and the average length of stay hovered around 14 days in the CIS, compared with 9 in the EU in 1996. Health providers were reimbursed based on the number of hospital beds, therefore local authorities had a strong incentive to build mega-hospitals that had high flows of patients and to bypass the primary care level. [Editor’s note: Moreover, hospitals were widely used as hospices.]. The predominant focus on specialist- and subspecialist-based curative care further reduced the use of primary care level services, thereby decreasing the system’s cost-efficiency even more.

Deteriorating Health Indexes

The efficiency and quality of care deteriorated, and ultimately the population’s health status worsened. Life expectancy, for example, fell significantly throughout the CEE countries and the CIS, with the greatest drop occurring in Hungary: 3.5 years from 1970 to 1990. During the same period age-standardized male mortality rates in Bulgaria, Czechoslovakia, Hungary, and Poland increased by 2 to 13 percent, compared with a decline of 12 to 27 percent in Western European countries. Between 1965 and 1989 death rates for males increased by 7 percent in the German Democratic Republic and by 13.1 percent in Hungary. Similar negative trends occurred throughout the Soviet Union as well. A substantial portion of the high death rates can be attributed to the prevalence of noninfectious diseases, such as cardiovascular and respiratory illnesses, cancer, and accidents. Highly cost-effective interventions, such as promoting healthy lifestyles, launching antitobacco campaigns, implementing anti-alcohol regulations, and so on, could have prevented most of these diseases. This clearly indicates the erroneous approach of a health care system that emphasized curative care and the prevention of infectious diseases, yet ignored the noninfectious diseases to which most of the high death rate was attributable, a typical manifestation of non-needs-based planning.

The high mortality rate, along with the economic crisis and high military spending, aggravated the sharp economic downturn that started in the CEE countries and the CIS in the early 1980s. The mortality rate burdened the region’s economy because of the lost investment in human capital, the increased state medical expenditures, and the more general opportunity cost of lost lives. Thus not only were health care reforms essential for improving the population’s deteriorating health status, but also for reviving the economy and maintaining international competitiveness.

From 1995 to 2000, total health expenditure as a percentage of GDP shrank to 5.8 percent in the CEE countries and 3.8 percent in the CIS, compared with 8.5 percent of a much higher GDP in the EU. Similarly, total per capita expenditures on health were much lower in the CEE countries and the CIS than in the EU. During 1995-2000 such expenditures increased from $85 to $167 in the CIS, from $415 to $500 in the CEE countries, and from $1,680 to $1,920 in the EU.

No Universal Reform Recipe

Fleshing out the patterns of health care reform across the CEE countries and the CIS is a complicated endeavor. The health sector cannot be reliably regulated by purely bureaucratic, governmental coordination or by purely market coordination, but must employ a combination of the two. Governments’ ability to achieve a sustainable balance between multiple health sector objectives depends on the development of an appropriate mix of supply-side interventions at the micro (institutional) and macro (system) levels. This mix should increasingly include a carefully constrained role for certain market-oriented incentives as well as for traditional regulatory instruments.

Viewing the early 1990s as catastrophic for their health care systems, many policymakers have attempted to make too many fundamental changes too quickly. Sometimes new policy decisions have undermined the dependency theory, that is, that every new policy, regardless of how radical a change it is designed to bring about, is nonetheless built on a former system. Attempts to build a new system without taking the ramifications of the old into account tend to prove ineffective.

Different countries in the region are at different stages of implementing health reforms. While many CEE and some CIS countries have switched to a system based on social insurance principles, others, such as Azerbaijan, are still operating within an old, Soviet-type framework. Not only do the countries vary according to how much they have advanced with respect to reforms, but they also vary in relation to the strategies they have chosen. While Bulgaria has privatized almost its entire provider sector, Lithuania has transferred health facilities to local governments, while in Ukraine these facilities still remain the property of the central government. Croatia, which had a fairly decentralized system prior to the 1990s, has attempted to strengthen the central government’s role and has therefore centralized certain aspects of health service provision and financing. In still other countries decentralization is one of the key components of the reforms. Thus talking about common policy strategies that are appropriate and applicable across the entire region is premature.

The author, a PhD candidate in social policy at Oxford University, U.K., has had an extensive career in international development assistance, focusing primarily on the impact of social capital on welfare and health. He can be contacted at gshak@yahoo.com.