Volodymyr Rudyi

the Ukrainian Director of the EU Project Health Financing and Management in Ukraine

Provision of constant and enough financing guarantees normal healthcare system's performance in any country. But as world experience shows any healthcare system faces the problem of financial resources deficit in a greater or lesser degree. Funds to ensure provision of all healthcare services for everybody always lack. Taking into account the social importance of a healthcare system and corresponding state obligations, the authorities are forced to look for and take different measures directed towards improvement of this sector financing.

All known arsenal of these measures can be divided into 2 large groups of strategies different by their nature.

The first group comprises strategies directed towards direct increase of financing. Conditionally they can be referred to as strategies of coping with physical (or quantity) resource deficit. This task can be solved either

  • at the expense of such an activity as redistribution of available resources in favour of a healthcare system by decreasing financing of other budgetary sectors;
  • or at the expense of introducing a new social insurance tax or fee

These two strategies are often used together.

However, in fact, the application of these strategies is not always possible due to various reasons of social-political as well as of macro economical character.

For example, the use of the first strategy requires politically complicated decisions which (when increasing health financing) can lead to impairing financing of other budgetary programmes in the sphere of education, culture, public order maintenance, defense, in particular, that are of great importance to the society as well.

Also the introduction of new social insurance taxes and fees will not be able to get enough support among politicians as well as various layers of population whose interests are represented by these politicians. Finally, there can be such a macro-economic situation that the government due to the insufficient level of economic growth will not be able to allocate more funds to healthcare than it is allocating at the present stage.

In fact, such a complex of conditions is present in Ukraine.

Though unit weight of expenses for healthcare (about 3% of gross domestic product) seems to be small in comparison with developed European countries, one shouldn't forget that total spending on healthcare is reaching almost 15% in the structure of general expenses of the consolidated state budget which is not so small from the point of unit weight (taking into account a great number of other social programmes supported by budgetary financing). Meanwhile amount of financing has been gradually increasing for recent years. Within the period starting 1999 (at least in absolute figures) health financing has increased almost twofold and a half. During the mentioned period the significant inflation levels were not observed in Ukraine. However, during the whole period of existence of Ukraine as an independent state the society has believed that health financing is very insufficient and it is the quantity deficit that causes all troubles for the national healthcare system.

On the other hand, political leaders of the country stick to the policy of decreasing tax pressure that corresponds to the trends typical of developed countries but they don't facilitate solving the issues regarding implementation of new social insurance taxes and fees. With great deal of certainty one can say that due to the existence of the whole complex of political and economic reasons we cannot expect efficient implementation of social health insurance in Ukraine even on condition that the relevant law is adopted.

It is clear that the absence of fast and effective changes in health financing and management can lead to further deep decay which will be characterized by far larger increase of inequity, destruction of solidarity and general healthcare accessibility principle. Further it's getting more obvious that the cause of the unsatisfactory status of healthcare system is not only the quantity fund deficit (but for the sake of equity one must admit that they really lack) but also inefficient utilization of available resources.

That is why it would be very reasonable if the government and the Ministry of Health, local executive bodies and local authorities, managers of healthcare facilities would pay their attention to the second group of strategies directed towards the improvement of health financial stability and economic efficiency. And they would not just pay attention to them but they would ensure their implementation.

Conditionally these strategies can be referred to as strategies of coping with quality resource deficit. They can be divided into two large groups:

  • strategies of restraining expenses (or control over expenses)
  • strategies of effective resource distribution.

Herewith strategies of restraining expenses are divided into demand-oriented strategies and proposal-oriented strategies.

It must be admitted that the strategies of restraining expenses and effective resource distribution possess the following common features:

  • they should stimulate the payer to control expenses at the macro-level;
  • they should stimulate the provider to control expenses at the macro-level;
  • they should have a universal character (they can be used in any model of fund raising at budgetary financing as well as at financing following the model of social insurance).

The aim and main examples of such strategies are given below which allows to have an impression regarding the way they work

Restraining resources

Demand-oriented strategies


To decrease baseless demand for healthcare services financed at the expense of public resources.

The most important examples:

  • participation of population in expenses (co-payment for healthcare)
  • restriction of the index of services to be covered by public resources (determining a basic package of services)
  • rationing of the access to services through implementation of 'waiting time'

Proposal-oriented strategies


To prevent baseless proposal of healthcare services

The most important examples:

  • setting competition between health providers
  • setting the limit of expenses or global budgets for health providers
  • reducing the number of doctors and beds
  • control over the expenses for provision of human resources (eg., doctors' salary)
  • control over the expenses for physical resources (medicines, equipment used to provide healthcare services)
  • substitution of expensive stationary technologies with cheaper ambulatory technologies and primary care
  • regulating the use of high-priced technologies
  • improving payment methods

However, one should mention the fact that in Ukraine possibility to use such strategies as co-payment and setting of basic healthcare services package to be covered by public funds is hampered by the peculiarities of corresponding legislative norms. First of all, it is Article 49 of the Ukrainian Constitution and the Decision of the Constitutional Court of Ukraine Re Free-of-charge Healthcare (29.05.02) according to which free-of-charge healthcare at state and communal healthcare facilities is considered to be full, without any restrictions provision of all healthcare services for all citizens when there is no reimbursement in favour of a healthcare facility. Undoubtedly, real and effective application of the mentioned strategies demands corresponding legal backing, probably, even amendments to the Constitution. Meanwhile, one should understand that even the richest country in the world isn't able to provide all its citizens with healthcare services at the expense of public funds. That is why the doctrine of rationing state health guarantees based on the paradigm of a basic package has recently been generally accepted and supported in the world.

As far as the mentioned strategies are concerned the possibility of their use doesn't require any amends to the legislation and they can be freely used as operational policies at macro- and micro-levels. Talking by and large, all that is needed for this is adequate knowledge of these strategies and political will to use them.

The same refers to the strategy of improving efficient resource distribution.

Improving efficient resource distribution

  • Introducing contractual relations
  • Improving payment methods for healthcare services
  • Introducing rational pharmaceutical policy
  • Increasing efficiency of investments

It may be said without exaggeration that the key strategy of effective resource distribution is implementation of contractual relations. In fact, it is this element that together with the provision of autonomic status of public healthcare facilities distinguishes healthcare contractual models oriented towards financing at the expense of general taxes in a number of European countries (eg., Great Britain, Scandinavian countries, Italy etc.) from the Ukrainian healthcare system that is based on the integrated model of resource distribution typical of soviet times and which doesn't comprise contractual relations.

The key role of contractual relations among strategies of health reform is confirmed by the World Health Assembly's Resolution The role of contractual arrangements in improving health systems' performance adopted in May 2003. The World Assembly appealed to the states, members of WHO:

  • to ensure the application of contractual relations in this sphere according to the rules and principles corresponding national health policies;
  • to make such a contractual policy that will maximize efficiency of a healthcare system;
  • to facilitate the exchange of experience regarding contractual relations regarding healthcare provision in public and private sectors and non-governmental organizations.

One should stress that current legislative system of Ukraine (primarily, the Civil and Business Codes of Ukraine, the Law of Ukraine on Procurement of Goods, Services at the Expense of Public Funds, legislative acts on local government and local state administrations) creates necessary conditions to transfer to the use of contractual model of health financing. But, unfortunately, due to insufficient awareness about legislation, insufficient knowledge of advantages of this strategy, skills to use it and absence of political will to implement changes in the center, on-sites contractual relations in the sphere of state procurement and provision of healthcare services are not used. The exception consists of some instances that refer to pilot projects implementation under the aegis of international donor organizations and under the aegis of the EU in particular.

Why is the introduction of health contractual relations important? The reason is that exactly this strategy triggers the whole series of other management strategies, namely:

  • stimulation of management decentralization at healthcare facilities (and so to increase the level of financial and managerial autonomy of these facilities);
  • increase of healthcare providers' efficiency;
  • increase of effective health planning at macro- and micro-levels;
  • improvement of the system of management over public healthcare provision;
  • change of relations between payer and healthcare provider from hierarchical to partner ones.

Even provided contractual procurement of healthcare services takes place in the noncompetitive environment (and such situation happens even in the countries with developed market economy, especially in rural areas and at least at the level of stationary care) the application of this strategy allows to formalize the planning and management processes and to make obligations of the parties transparent and precise regarding achievement of certain aims and performance of certain tasks. And this is the key towards provision of legal and economic incentives to enhance effective resource distribution.

Improving payment methods of healthcare providers aims at:

  • encouragement of providers to use the resources effectively and to restrain the growth of expenses;
  • improvement of healthcare accessibility and quality;
  • creation of incentives for providers to use prophylactics.

Two basic systems of payment for healthcare services are distinguished:

1. Retrospective payment (fee per service, that is, payment per resource provided)

2. Prospective payment (payment per capita), i.e., payment per responsibility to provide certain group of consumers with healthcare services at a certain period of time; conditionally payment based on a fixed salary used at budgetary healthcare facilities of Ukraine can be referred here. But, unfortunately, the model used in Ukraine doesn't foresee transparent and really effective economic incentives for healthcare providers, both physical and legal entities, to work more efficiently and find optimal balance between quality and expenses.

Within each of these systems after-payment can be used as encouragement for good quality and efficiency.

Undoubtedly each of these systems has its advantages and disadvantages. There is no ideal payment system. However, world experience shows that advantage should be given to the development of prospective payment as it encourages effective resource distribution.

The main risks of retrospective payment mechanisms application and basic advantages of prospective payment mechanisms are given below.

Risks of retrospective payment mechanisms

  • Broad possibilities for providers to induce demand for services, which leads to an increase in the number of services (including unreasonable services) and, respectively, to costs increase
  • Manipulations with fees from providers' part (manipulations with price lists in order to maximise revenues)
  • Tendency among providers to provide as many expensive services as possible, including cases when there is no clinical prescription for such kind of services
  • "Fabricated medical intervention" (absence of incentive to refer patients to other, more adequate, from the point of view of cost effectiveness, level of health care)

Advantages of prospective payment mechanisms

  • Creates incentives for provides to control costs and implement a more rational and cost-effective style of health care provision
  • Creates incentives for provides to implement preventive medicine
  • Promotes a better geographic distribution of specialists

The goal of such strategy as efficient pharmaceutical policy is as follows:

  • to control allocations due to the influence on demand and supply;
  • to guarantee adequate selection of pharmaceuticals on the basis of optimal correlation of price and clinical efficiency.

The most representative examples illustrating the core provisions of this strategy are:

  • implementation of Essential Drugs policy and development of generic pharmaceuticals market;
  • introduction of positive and negative pharmaceutical lists
  • implementation of formulary system (systematic guidelines, clinical process management)
  • audit of medicine prescription practice;
  • control over prices and revenues of producers and distributors.

It is worth mentioning that, despite all declarations of loyalty to this strategy, there is still no real favourable regulatory environment for its adequate implementation in Ukraine. To prove this, let us consider how imperfect is the current National index of essential (vitally important) pharmaceuticals and medical products in terms of its non-compliance with corresponding WHO recommendations, let us remember about absolute absence of formulary system, let alone completely inconsistent or even non-existent effective practical approaches to the rest of the above-mentioned strategies, in particular, concerning price management, selection of pharmaceutical products in the procurement process, etc. Careless attitude to all these aspects means huge volumes of unjustified use of extremely limited resources of the field.

Increasing the effectiveness of investments aims at:

  • achievement of perfect equilibrium between investments, health technologies, funds and health care system reforms;
  • promotion of high-tech implementation;
  • due balance between reinvestment and current expenditures on adequate capital assets maintenance.

Among the targets of the strategy application are:

  • to close or restructure in-patient departments and direct investments to the out-patient sector or to the preventive medicine (in cases, when certain new technologies allow for the possibility to provide more cost-effective treatment in ambulatory conditions or to prevent a disease due to prophylaxis);
  • to avoid implementing highly expensive technologies and treatment methods the clinical effectiveness of which has not been proved.

This seems to be quite simple to understand; nevertheless we tend to be more and more aware of existence of unjustified prioritising in-patient healthcare development and insufficient attention to ambulatory and primary healthcare. The same refers to the inadequate control over the purchase and use of expensive high-tech equipment, and almost complete ignoring of the principles of evidence-based medicine in medical practice.

In conclusion, it is necessary to stress, that the best results in improvement of health care system financing, its quality, efficiency and effectiveness, can, undoubtedly, be achieved by simultaneous and consistent application of the three above-mentioned techniques, which imply increase in the volumes of financing, realisation of costs control and effective distribution of resources.

One must also be aware that a considerable increase in the volumes of financing requires, as a rule, the introduction of a new tax or a new social insurance charge, as only by such approach, it is possible to avoid negative consequences for other budgetary sectors. Although, the introduction of a new social insurance tax or charge demands, in its turn, attendant political and legislative decisions, which can be effectively executed only provided corresponding macroeconomic conditions, sufficient level of economic development in the society, increase of economic well-being, secured high level of transparency of taxation system, labour market and the economy on the whole.

In addition, the situation in healthcare system of Ukraine requires the understanding - from the part of those responsible for decision-making (central and local authorities, self-government bodies, heads of health facilities) - of the fact that the quantitative resource deficiency is not the only cause behind the unsatisfactory state of affairs, and that ineffective cost control and resource distribution are also of crucial importance.

That is why, without waiting for adoption and implementation of the Law on social health insurance, which is believed to be able to overcome the crisis in the national healthcare, it is necessary to try our best to gradually increase the financing of the field and simultaneously implement on the macro- and micro level the comprehensive mechanisms of cost control and resource distribution. It is important, that the implementation of the majority of them does not require any additional laws - they can be used as current administrative strategies within the current legislation. Thus, it would not only promote the stability, quality, effectiveness and transparency of the modern healthcare system, but also would positively influence the development of infrastructure and institutional capacity for a genuinely effective transition to the social health insurance model in the future.