EU PROJECT ON HEALTH FINANCING AND MANAGEMENT IN UKRAINE: FROM PILOT REGIONS TO THE NATIONAL LEVEL

Implementation of the EU project on Health Financing and Management in Ukraine started on Dec. 12, 2003. The Project aims to provide technical assistance in reforming the Ukrainian health care system. One of the most important activities under the Project is to practice new models of health financing and management based on two pilot regions - Popilnya Raion of Zhytomyr Oblast and Zolochiv Raion of Kharkiv Oblast (see Apteka Weekly No. 31 (452) of Aug. 16, 2004). To this end, the Project intends to use state-of-the-art strategies that have proven their effectiveness in other European countries, including those whose health care systems quite recently were similar to that in Ukraine. One of the ultimate goals of this Project activity is to demonstrate the effectiveness and efficiency of these strategies using the example of pilot regions. We asked Volodymyr Rudy, Ukrainian Project Director, to amplify on the Project implementation in the pilot regions.

Volodymyr Rudy, Ukrainian director of the EU Project "Health Financing and Management in Ukraine"

Q: Mr. Rudy, why was it that just these two raions - Popilnya of Zhytomyr Oblast and Zolochiv of Kharkiv Oblast - were selected as pilots for the Project?

A: These regions were selected competitively. We formed a competition commission of representatives from the Ukrainian Health Ministry (the official beneficiary of the technical assistance under the Project), European Commission Delegation to Ukraine, and WHO Bureau in Ukraine, as well as experts from the Project team. The commission mailed letters of invitation to take part in the competition with enclosed questionnaires to all Oblast State Administrations and the Crimean Council of Ministers as well as to respective Health Departments. Ten oblasts responded as willing to compete. We decided to select one "rural" raion in each of the winner oblasts because they were the most typical basic administrative structure that played the most important role in the organization of the medical care system. Presented here are both primary and secondary levels of medical aid provision, both rural and urban population. Moreover, we also took into account the fact that the two winner raions had already had certain experience in implementation of some progressive health reform innovations. For example, in Popilnya Raion in the late 1980th - early 1990th, they were testing a new economic mechanism of the medical service system operation. As part of this mechanism, attempts were made to introduce some principles of the self-sustaining organization approach in treatment and prevention institutions (TPIs), orienting their activities toward assessment of final results and performance quality. This raion, like the whole Zhytomyr Oblast, has also accumulated certain experience in running "sickness benefit societies," which is an element of people's solidarity participation in cofinancing of medical care system. In Zolochiv Raion, there is certain experience in arranging primary medical aid through rural outpatient facilities of family medicine, which is known to be an important, worldwide-recognized strategy to increase the resource use efficiency in medical services. Another important selection criterion was the local government's willingness to carry out serious organizational, structural transformations necessary for implementation of the new models to be piloted. We also took into consideration, to a certain degree, the geographic distinctions of these raions, which must help to get more credible data on the Project effectiveness depending on the regional policy of local authorities and the public mentality. So, on the whole, we believe these raions to be quite typical; and this must also help later on, when the positive experience acquired in these raions under the Project will be probably rolled out.

Q: Could you please elaborate on that?

A: We distinguish several stages and activities in implementing the positive experience acquired under the Project: create conditions for further health care reform in the pilot regions; achieve constructive results there; and based on these results, develop recommendations on progressive changes to be made both in the practical activities of local authorities, local governments and their subordinate health care institutions and in the national legislation. This must help to implement the positive experience first in neighboring regions, and then throughout Ukraine. At the same time, we intend to train local officials, health department staff, and medical workers to orientate easily in effective regulations. Because even within the current legal framework, specifically the budget and local government laws, one can do a lot of useful things to improve the quality and efficiency of the Ukrainian health care system - what you only need is the awareness of relevant legislation and the political will. Even under the present legal conditions, we can say about the possibility to initiate the Ukrainian health reform "from below," not waiting for a compulsory health insurance law to be passed.

Q: What basic mechanisms of reforming the health care system in the pilot regions are planned to be implemented in the course of the experiment? What is the point, and what is the use?

A: Enhanced financial and administrative autonomy of local health care institutions must become a sort of benchmark. Today, in fact all state and municipal health care facilities have the status of budget-funded institutions, which are financed based on itemized cost estimates. This limits extremely their possibilities to take flexible economic and administrative decisions aimed to improve both the quality of medical services and the resource use efficiency. They have no economic incentives to do either former or the latter, and their financing system has no link to the end result and performance quality. Rigidly regulated by itemized cost estimate in their operation, TPIs lack flexibility in solving many issues regarding the use and redistribution of funds, expenditure priority setting, development of personnel structure, improvement of capital assets, increase in remuneration of staff, etc. Therefore, the first step planned to be made in the pilot regions is to reorganize all or at least some medical facilities in these raions (essentially their Central Raion Hospitals) into municipal nonprofit enterprises. This is what will allow us to expect an increase in the level of their autonomy, while avoiding additional tax burden, which would be the case were they converted into commercial enterprises.

The next step will be to implement a new system for compensation of the costs of services provided by medical facilities in pilot regions. The idea is to switch from the current financing model, the one based on an itemized cost estimate, to financing under agreements on procurement of medical services at the expense of corresponding local budgets (village, raion). In this way, on the one hand, we expect to increase the responsibility of authorities for the quality of financing, and on the other hand, the responsibility of medical facilities for the quality of services they provide. The new economic model will give medical institutions more possibilities for independent decision-making as to what to spend allocated funds on, and how much: to improve the hospital's capital assets, or to increase wages of its staff, etc. - what only matters is whether or not the institution ensures proper quality of medical services. At the same time, the institution will enter into individual contracts with each member of its staff, and the individual performance quality will be the decisive factor determining the wage level. Thus, health care institutions in general and every medical worker in particular will get economic incentives to treat patients better, while avoiding unreasonable costs. As shown by experience of other European countries, such approaches - even in constrained financial circumstances - allow for making the medical care system more effective, setting up expenditure control, and simultaneously improving the quality. And since - let's be realists - any substantial additional financial injections into the health sector in the near future are hardly possible, just these and some other strategists of expenditure control and rational use of available resources are taking especially important meaning.

Furthermore, we suggest that village Radas in the pilot regions would transfer the budget expenditures, which are presently attached to them for financing of primary aid (village outpatient facilities, paramedic/midwifery stations, etc.), up to the level of raion budget in order to create in the raion a more powerful and better-controlled source of funds to finance both primary and secondary medical aid. In other words, the matter is actually to simulate a raion-level local fund of state health insurance, and test in practice basic approaches to financing of health care institutions under the conditions of insurance.

Q: In which way will the local governments in the pilot regions be involved in the Project? What is their role - passive observers or active participants?

A: Such reforms are impossible without active participation of the local administrations and governments in the pilot regions. First, to change the legal status of health care institutions, their need to be relevant decisions taken by the village or raion Rada and the Raion State Administration. Second, we suggest that Raion Health Offices be formed within the pilot regions' Raion State Administrations. These offices will function as the principal when entering into the above-mentioned medical service procurement contracts, and will supervise the quality of services provided by medical facilities at the village and raion levels. Third, as I have already mentioned, there need to be decisions by village Radas on the transfer of primary aid expenditures from their budgets to the raion budget. So the local governments play the pivotal role in ensuring success for the Project.

Q: How will Raion Health Offices determine the qualitative and quantitative composition of ordered medical services to people? What they will use to measure the quality of services provided?

A: In the first place, they will take into account the requirements of legislation - the program of state-guaranteed free medical aid approved by the Cabinet Ministers and the list of paid medical services that the state and municipal TPIs are allowed to provide. They will also carefully take into account the positive experience accumulated by TPIs regarding treatment, diagnostic, and preventive work, analyze relevant statistical data, cooperate with hospital specialists, consider demographic situation in their raions. We will try to do our best to ensure that actual medical needs of population in concrete raions be maximally taken into account when entering into contracts and determining the volume of their financing.

The medical service quality control will be guided by relevant Health Ministry orders, which have approved interim unified standards of inpatient and outpatient care. In addition, the offices will take into consideration the morbidity rates and other statistical data that somehow or otherwise characterize the performance of service providers and the resource use efficiency of TPIs.

Q: What impact may implementation of the above provisions of the Project in the pilot regions have on the medical services market and the personnel policy of TPIs?

A: Implementation of the proposed changes must undoubtedly promote normal competition among medical institutions and among individual medical workers, because only those best will be eligible for entering into contracts. And this will have a positive impact on the service quality. Obviously, in the initial phase, especially in rural areas, any competition among institutions will be out of question. After all, the Law "On State Procurement of Goods, Works, and Services," based on the principles of which we are going to work, allows the single-supplier procedure to be used for budget contracts in absence of competition. And we expect that just this procedure will be used at the first stage. However, even such an approach will allow us to practice the pattern of TPI operation under the contractual relationships, which is extraordinarily valuable in itself, the more so in view of future implementation of compulsory state health insurance. But even in the rural areas, the very beginning of implementation of such a financing procedure will allow us to say about establishment of working competition among institution staff, which is also very important.

And where the approaches advocated by the Project are implemented in large cities with many medical institutions of various ownership forms, the development of normal competition for state contracts will be much easier. In the rural areas, however, having competition in the health care sector in the future will be most likely at the level of primary aid, especially based on the model of private family practitioners.

Q: The implementation of the new form of economic activities in TPIs may require changes in record-keeping procedures and practices, especially financial reporting. What will be the Project's assistance in this respect?

A: TPIs will not be left single-handed to cope with the problem. The Project envisages relevant training of their staff.

Moreover, one of the Project's most important objectives is to create a new IT system to support the new economic model, and purchase appropriate hardware and software for TPIs in the pilot regions.

The start of Project implementation in the pilot regions is scheduled for Jan. 1, 2005.

Q: According to what you have said, there will be quite significant changes in the raion health systems. How do they fit in effective legislation?

A: The planned changes in the legal form of organization of state and municipal health institutions are fully legitimate. They can be implemented by appropriate local governments and state administrations in a manner established by law without any additional authorization and instructions from the top. We have already signed agreements on cooperation with the pilot regions, and hope that they will ensure adoption of administrative decisions coming within their competence that will enable the actual testing of the new models to start as soon as the beginning of fiscal year 2005.

Oleksandr Siroshtan; photo by Ihor Kryvinsky