Bela Kaunzinger


The advantages of contracting in pilots' health care environment


A contract is defined as a written agreement between two parties intended to be enforceable by law. Essentially, a contract is a statement to the rights and obligations of each party of transaction. In the health care environment contracting parties are purchaser and health care provider. The separation of these functions has to be established in order to introduce contracting in the health care environment.

There are 2 models to do it. The first way is to organize health care funding with a mandatory health insurance and the second way is to use a tax funding system.


Local administrative units act as a single payer (purchaser) and give a global budget to health care providers in order to receive medical treatment for their population. On the other hand, there are local health care providers which act as autonomous non-profit health care enterprises. The second model can be already used in Ukraine today.

In the so called old EU, 6 countries consist that are related on mandatory health insurance and 9 countries that use a tax financed system. But most of the Central Eastern European Countries have introduced mandatory health insurance in the beginning of the 1990s.


A patient's treatment has always to be seen within the context of its health care environment. The health care environment is regulated by the legal framework of a country. Main task of a statutory health care system is to secure access to basic services for the population. In order to establish a health care provider, that is able to act as a contracting party, its operational autonomy has to be achieved by creating a non-profit health care enterprise. The provider must have flexibility to respond to purchaser`s demand and to be able to increase or decrease capacity, and take financial responsibility for performance. Technical capacity and management skills of both contracting parties have to be improved. Experience shows that efficient contracting requires particular skills (for example, identifying cost-effective medical interventions, negotiating and monitoring providers` performance, communication strategy, etc.)


The main task of contracting in this early stage of contracting in Ukraine 's health care environment is to bring more efficiency into the system by introducing a global budget to health care providers.


In order to re-allocate the scarce financial resources, it is necessary to replace historical line item budgets. In the present system shifts of resources between the line items are not possible, and the line item expenditures have to be spent by the end of the year in terms not to be cut next year. The main approach of the line item budget is to have maximum control on the consumption of health care resources and minimum individual autonomy. Line item budgets do not encourage efficiency. The inefficiencies of the current system were mainly caused because of the line-item budgets. There were no positive incentives for payers, providers and consumers, which did lead them to more rational decisions in the way health care resources are used.


In the beginning, the introduction of block contract is the most effective way to insure that limited resources are targeted more effectively, if combined with the payment for in-patient services on the basis of a global budget and the payment for primary health care on the basis of the capitation principle. The meaning of block contract is, that a provider is contracted to deliver services to a given population. This contracts effectively transfers financial risk from the purchaser to the provider. Provider must treat as many patients as come from the same level of funding. The difference to the traditional Soviet system is that the contract is monitored for quality of care and, since the purchaser is institutionally separate from the provider, it may move the contract if quality is not high enough. If patients complain, for example, that some have been turned away, refused treatment, forced to pay extra or been given sub-standard service, the contract may be terminated.


In the contrary, a fee for services contract which is based on number of individual outputs like procedures does not encourage cost containment of limited resources, because provider's main incentive is to increase its income by driving up the volume of performances. This behaviour will put fiscal pressures on the purchasing organisation by all means.


One basic element of the contract on provision of health services, which is closed by health care department of Zolochiv and the communal non-profit enterprise “Zolochiv rayon hospital” is the global budget itself and its incentives. The global budget was created out of the sum of the former line items. The inpatient and polyclinic and urgent care sector were institutionally integrated, but received separated sub-budgets for reasons of cost-containment and reimbursement. The contract defines clear objectives and performance indicators. The main guideline that is established is to increase efficiency of usage of existing resources. The contract also includes minimum figures on services that have to be provided by the hospital enterprise (minimum outpatient surgical operations, minimum day care patients, and minimum figures on home care patients according to its population).


The Zolochiv contract is the first agreement between a public health care purchaser and public health care provider in the territory of Ukraine that is based on a global budget.

The next step in improving the contracting process will be the development and introduction of financial incentives through new methods of paying hospitals.


The performance figures that have to be provided by the communal non-profit enterprise, ensure the access of the population to medical treatment. On the other hand the health care provider receives a global budget in order to allocate its resources more efficiently. The line item budgets which are now being transferred into a global budget guarantee fiscal stability to the public purchaser.

The Zolochiv contract creates a win-win situation, for the population, the health care provider and public purchaser.