Dealing with Four Elements of Postcommunist Health Care Systems
by Hernan Luis Fuenzalida-Puelma

To implement effective reform in postcommunist health systems, the authorities must recognize that in addition to the public and private health sectors, an informal sector and a public-private mix also exist and their particular situation requires unique solutions

After more than a decade of health care reforms in Central and Eastern Europe, it is common to read about the duality of health systems divided between underfunded public (state) sectors and financially exclusive private sectors. State sectors are characterized by oversupplies of hospital beds, poor infrastructure, a focus on inpatient care, low-quality and limited primary and preventive health care, disincentives for health care staff at all levels, and customer dissatisfaction. By contrast, the private sectors cater almost solely to the affluent; cooperate with large, usually foreign corporations; allow patients to choose among qualified physicians; provide services and consultations promptly, obtain modern medical equipment; and, under special arrangements, enjoy access to public hospitals and clinics.

In reality, however, the region’s health care systems do not exhibit any duality. Even during the socialist period there was a "triality" that consisted of the formal public system for the population at large, the formal public system for the apparatchiks, and the-under-the-table system within the public system.

Today the sectors have become even more complicated, exhibiting a "tetrality" as follows:

• A public health care sector that continues to serve most of the population and to do so badly

• An incipient, but growing, private health care financing and delivery sector aimed mainly at the middle and upper classes

• A persisting informal public-private mix consisting of an unregulated secondary market within the public health care system in which mostly public resources are used privately

• A formal (through contracts) public-private mix whereby the financial and delivery resources of the public and private sectors interact in a search for efficiency and mutual benefits.

Public Health Care

The public health care sector continues to bear the responsibility of financing and providing health care to the majority of the population. This colossal task—particularly if properly carried out—requires many adjustments carried out over several years. These adjustments must represent a visible redesign of the larger health care system to incorporate fewer beds and hospitals and integrated polyclinics with larger outpatient services. Polyclinics need to be restructured, merged, and reorganized to focus on primary and preventive care. Regional and municipal-based networks should be redesigned to provide services locally and avoid the overuse of regional and central hospitals. The number of physicians must be reduced, but with due coordination between health and education to avoid, for example, what occurred in Georgia, where the Ministry of Education unilaterally approved dozens of private medical schools in a country already oversaturated with physicians. Primary health care training for physicians and nurses also needs to be improved.

The hopes for social health insurance to finance basic public packages of health care goods and services have not panned out as expected. Conceiving an employment-based social health insurance system in the midst of a transition that curtailed formal employment and fomented unemployment does not seem to have been a good or an opportune idea. Revenues have been inadequate, and the burden still rests with public treasuries, which are incapable of making the required transfers to sustain the systems financially and to subsidize those not in the formal employment sector. Voluntary health insurance, which is supposed to complement social health insurance, has developed slowly, mainly because of consumers’ lack of interest.

Costs have increasingly been passed on to consumers in the form of copayments and user fees, with disastrous results for the poor. This has heightened people’s distrust of public systems and consumer dissatisfaction, particularly among socially and economically vulnerable groups.

Instead of establishing a single social health fund most countries have created several health funds, leading to fragmentation in relation to resources, high administrative and transaction costs, administrative duplication, and inefficiencies. Elsewhere the process of re-centralization has been inevitable, but when adopted early on, as in Estonia, it has prevented the problem of excessive enlargement. Overall, public health care systems remain underfunded and largely unrationalized, and provide low-quality services to most of the population.

Despite recent accomplishments, including a reduction in the number of hospital beds (many of which existed only on paper and not in reality), the public health care infrastructure generally remains in relatively bad shape, with low-quality care and shortages of equipment, medications, and even basic medial supplies, particularly in rural areas. The decentralization of health care services has also been disappointing. Regional and local governments simply do not have enough resources.

Private Health Care

Every CEE country possesses an openly operating private health care sector that is linked to some formal sources of financing, such as banks and insurance companies, and various packages of health care goods and services provided by insurance companies and through prepayment schemes. In Bulgaria these schemes involve service packages offered by private financiers in association with groups of physicians for a fixed fee. Growth of the private sector is generally proceeding in an unregulated manner.

Health care delivery in the emerging private sector is generally good, but tends to be limited to certain specialists, such as gynecologists, pediatricians, dentists, pharmacists, cardiologists, and ophthalmologists. Such practices are evident everywhere, but especially in those countries where the polyclinics were broken up. The emphasis on the development of primary health care has also given rise to the emergence of general practitioners in private practice.

The main constraints facing private health care delivery are legal, because it is difficult for physicians to create their own practices in the form of separate legal persons, and financial, because of limited access to capital and operational credit. In addition, the lack of proper regulations on accreditation, licensing, and certification contribute to the emergence of mediocre professionals in the private market. The absence of patient’s rights, appropriate claims procedures, and malpractice laws foster the uneven development of private health care delivery.

Informal payments made to individuals or institutions, in kind or in cash, outside official channels can be found in health care, the courts, customs, the traffic and tax police, various inspection services, and virtually all public services. Regardless of the field, this important issue, which is embedded in the current institutional system from the socialist period, is detrimental to any rational effort toward development and governance. In health care the problem directly affects the well-being of individuals and families, as informal payments represent a significant proportion of household income. As such, they affect the poor the most. Often such payments are indicative of corruption and have increasingly become the usual form for paying and remunerating public health care providers. The logic of informal payments seems to be that they ensure quality, priority, or a certain treatment, and constitute a regular under-the-table business for many health care providers. Regrettably, they have become almost mandatory because of the financial and institutional breakdown of public health care systems. Providers feel entitled to receive these payments and patients believe they are obliged to pay.

Formal Public-Private Mix

The formal public-private mix is slowly developing. As public hospitals and polyclinics gain some legal and institutional autonomy, they are able to enter into contracts with private financial sources. In turn, they can spend these incomes on their own, outside the restrictions of budgetary lines. Public establishments therefore have a powerful incentive to enter into such contracts. In some cases, for example, in Lithuania, private health care businesses lease space in public hospitals to operate private clinics. These arrangements can include the use of some hospital facilities, such as laboratories, operating rooms, and rehabilitation premises. Often such arrangements take place between the private sector and military hospitals with spare capacity. Meanwhile, social health insurance sometimes pays for services rendered in private facilities, but this is typically confined to important public officials. The system is becoming more complex, and contracts stipulate details of the relationships.

Financing derives mainly from private sources, namely, health insurance companies. Large prepayment schemes also have contracts with public and private providers, both individual and institutional, for example, in Bulgaria. In some cases social health insurance funds purchase services in the private sector, mostly in more modern and better-equipped private health care facilities. Delivery appears to be of relatively good quality. Regulation is typically accounted for in contracts, listing the types of services to be delivered as well as quality standards.

Impact of Health Care Reforms to Date

Health care reforms that focus on financing and payment mechanisms have produced mixed results. The reasons for this include a weak macroeconomic context, low levels of formal employment, low compliance with social contributions and a lack of fiscal transfers, and overgenerous basic benefits packages. Likewise, the expectation that health insurance would result in greater and more stable revenues and allow health care professionals to earn more has not been the case. For the most part the situation of public health care workers has not improved.

Social health funds have not been given full and adequate legal and institutional structures to ensure their financial, managerial, and contractual autonomy. Meanwhile ministries of health fight social health funds, because they feel that they no longer have control over the financing of the public health care sector and are reluctant to accept that their role needs to change to one of policy and regulation and that they need to concentrate on public health. Multiple social health funds have proven to be a bad idea.

Legal and institutional impediments to payment mechanisms, complex contracting procedures, and a lack of enforcement of contracts have challenged the efficacy of some financial reforms. Accumulated deficits in the public health care sector result in public systems not honoring contracts with suppliers, thereby contributing to increasing mistrust of public systems and the consolidation of public health systems that are financially unreliable. In essence, while private sectors have benefited from the opening of markets, public health care infrastructure has not changed substantially even after a decade. Without renovating the legal and institutional settings, labor markets, and medical education systems, and without rationalizing public health care infrastructure and enhancing primary and preventive care, any attempted reform is piecemeal.

The author is a senior international consultant to both international organizations and the private sector. He edited the volume Health Care Reform in Central and Eastern Europe and the Former Soviet Union: A Literature Review, published in 2002 by the LGI. His email address is hfuenzalida@cs.com.