Reforms in purchasing in Central/
Eastern Europe and ex-USSR:
pay for performance?
Joseph Kutzin
Head, WHO Barcelona Office for Health
Systems Strengthening
Incentives for Health Provider Performance Network
11 May 2011, Clermont-Ferrand, France
Pay for performance: lessons from
central/eastern Europe and ex-USSR
11 May 2011
Main sources for this presentation
And the publications produced by the Kyrgyz Health Policy
Analysis Center (see www.hpac.kg for more)
Overview
• Motivations for reform of purchasing and some
key messages from our analysis of financing
reform implementation
• The (mostly) Kyrgyz experience
• General lessons learned from the region, and
possible lessons for low and middle income
countries elsewhere in the world
Pay for performance: lessons from
central/eastern Europe and ex-USSR
11 May 2011
Motivations for reform of purchasing
• Inheritance of excess capacity, low productivity,
and unresponsive systems
• Growing recognition of poor quality in service
provision, especially primary care
• Expectation that with “new formulas” by which
only good and efficient services would be
purchased, the problems could be solved
Pay for performance: lessons from
central/eastern Europe and ex-USSR
11 May 2011
Key alignment issues (coordination, not
magic bullets or “schemes”)
1. Revenue collection and pooling
- Explicit coordination/pooling of budget and payroll tax revenues
2. Revenue collection and purchasing
- Predictable, stable revenues to the purchaser
3. Pooling and purchasing for redistribution and efficiency gain
- Not only new provider payment methods; need both
4. Revenue collection and benefit package
5. Benefit package and purchasing
- Explicit links to avoid merely declarative entitlements
6. Financing and service delivery
- Incentives alone not enough: need changes on provider side and
political will to implement
Our list of pitfalls – errors in conception
as well as implementation
1. Treating the benefits package as the solution to an
accounting problem rather than as a policy instrument
2. “Solving” informal payments simply by legalizing them as
co-payments
3. Undertaking incomplete or “half-hearted” reforms
4. Implementing contradictory policies
5. Having unrealistic expectations in terms of effectiveness
of health financing instruments to improve quality of care
6. “Starting insurance” with the formal sector and hoping
that economic growth will bring eventual progress
towards universal coverage, as it did historically in many
west European countries
7. Ignoring public health services and public health
programs in health financing reform and policy analysis
Aligning benefits with
purchasing to enable
realization of entitlements
Reducing out-of-pocket spending for
defined exempt groups in Kyrgyzstan
Pay for performance: lessons from
central/eastern Europe and ex-USSR
11 May 2011
How benefit categories, co-payment
obligations, and purchasing are linked
by the Kyrgyz MHIF
Purchaser pays:
Patient pays:
hospital base rate
co-payment
None
Self-referred
Max
Little
Uninsured
High
Mid
Insured
Mid
High
Partially exempt
Low
Most
Fully exempt
Zero
Unique research on informal payment
• Data on informal payment is based on patient
surveys
• There have been 5 complete survey waves
between 2001 and 2006
• Interviews conducted 4-6 months after discharge
• Detailed record of payment is taken without
mentioning the word ‘informal’ or ‘illegal’
• Survey data is merged with the case-based data
of the MHIF to obtain administrative data on
case characteristics
Pay for performance: lessons from
central/eastern Europe and ex-USSR
11 May 2011
From declaring benefits to purchasing them:
changes in OOPS by exempt patients
700
650
700
600
545
500
Soms
500
488
458
500
400
300
200
130
100
0
Exempt
Not exempt
Exempt
Single Payer
Not exempt
Other regions
Baseline
Follow-up
Source: WHO surveys of discharged hospital patients
Informal payments declined most for
pregnant women and children…
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
-52%
-19%
-37%
2001
2006
All patients
Informal payment
2001
2006
Children<5
Co-payment
2001
2006
Pregnancies
For children<5, the
net reduction in total
patient payments
was KGS 736 or
52% in real terms
 For pregnancies,
the net reduction in
total patient
payments was KGS
363 or 37% in real
terms
Pay for performance: lessons from
central/eastern Europe and ex-USSR
11 May 2011
… and show significant improvement for
pensioners and other exempt categories
-33%
2,600
-19%
2,100
-28%
-13%
1,600
For pensioners>75,
the net reduction in total
patient payments was
KGS 397 or 28% in real
terms
 For medically exempt,
the net reduction in total
patient payments was
KGS 732 or 33% in real
terms
1,100
600
100
-400
2001
2006
All patients
2001
2006
Pensioners>75
Informal payment
2001
2006
Medically exempt
Co-payment
2001
2006
Socially exempt
For socially exempt,
the net reduction in total
patient payments was
KGS 181 or 13%
Pay for performance: lessons from
central/eastern Europe and ex-USSR
11 May 2011
Aligning purchasing with
service delivery in an attempt
to improve quality and
outcomes
Well conceived, but yet to deliver the
results in Kyrgyzstan
Pay for performance: lessons from
central/eastern Europe and ex-USSR
11 May 2011
Motivation
• In analyzing its hospitalization data, MHIF
determined there were a lot of cases for
conditions that could be effectively managed at
primary care level (“primary care-sensitive
conditions”) IF treatment was appropriate and
the population had access to the relevant
medicines
Pay for performance: lessons from
central/eastern Europe and ex-USSR
11 May 2011
Aims of Kyrgyzstan’s additional drug
package
• Promote use of new family physician groups by
expanding their services (i.e. raise their
credibility)
• Reduce unnecessary hospitalizations by
supporting outpatient management of key
conditions (asthma, hypertension, anemia,
ulcers)
• Improve quality by link to new clinical guidelines,
especially improved prescribing practices
• Reduce cost of outpatient drugs for beneficiaries
Pay for performance: lessons from
central/eastern Europe and ex-USSR
11 May 2011
Features of the drug package
• Funded out of FGP capitation payment
• Covers limited list of prescribed items; targets 4
causes of avoidable hospitalization for which
clinical guidelines were developed
• Prescribing by generic name required
• Purchaser (MHIF) contracts with qualifying
private pharmacies
• Patient pays difference between reimbursement
rate and retail price
Pay for performance: lessons from
central/eastern Europe and ex-USSR
11 May 2011
Initial results were encouraging
• All PHC physicians have been re-trained
• Monitoring studies show that adherence to
guidelines is high in PHC
• Additional Drug Benefit is widely used and HTN
drugs are “top sellers”
Pay for performance: lessons from
central/eastern Europe and ex-USSR
11 May 2011
But detailed survey analysis revealed
problems in effective coverage
• Kyrgyz Health Policy Analysis Center and WHO
study of health system effectiveness in
Hypertension Control included hypertension
monitoring as part of the health module
– Nationally representative sample
– 12,438 respondents 18 years or older in KIHS
– 10,170 completed HTN measurement
Pay for performance: lessons from
central/eastern Europe and ex-USSR
11 May 2011
The Additional Drug Package is a good
program but not enough
• ADP provides subsidy to
insured people for the
purchase of drugs for
primary-care sensitive
conditions incl. HTN
• Generic prescription rate
is very high
• Patients switch to brand
name drugs at the time of
purchase
• Cannot afford brandname drugs continuously
• Result: intermittent use of
HTN medication
% of generic versus brand name
HTN medication in ADP
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Prescribed
Generic
Source: MHIF
Sold
Brand name
Why did people not take their HTN
medication in the last 24 hours?
Could not find
0%
Doctor told me
to take it in
crisis
63%
Pharmacy was
far
0%
Other
10%
Did not have
money
10%
I did not feel like
it
17%
Major problem of provider quality
“If my physician had emphasized the importance
of taking drugs for high blood pressure, I would
have taken it on a regular basis, and maybe I
would have avoided getting a stroke.” (Man, 50
years old, Jalal-Abad oblast)
Akunov, Ibraimov, Akkazieva et al. 2007. “Is the Kyrgyz health system effective in
preventing and treating cardio-vascular disease?” CHSD Policy Research Paper No
45. http://hpac.kg
Pay for performance: lessons from
central/eastern Europe and ex-USSR
11 May 2011
Measuring the effectiveness of the
health system in HTN control
Aware:
Treated:
Controlled:
26.5%
17.1%
13.9%
2.4% of hypertensives whose
blood pressure is controlled
So even this comprehensive approach
was not adequate
• Provider behavior resistant to change
• Generic prescribing built into the ADP was
undermined by switching to more expensive
branded drugs in the pharmacy
• Repeat of study in 2010 showed improvements
in population awareness of their condition and
care seeking behavior (especially in rural areas
and for women), but little change in provider
behavior and population behavior with regard to
taking their HTN medications
Pay for performance: lessons from
central/eastern Europe and ex-USSR
11 May 2011
Some conclusions and
possible lessons for other low
and middle income countries
Pay for performance: lessons from
central/eastern Europe and ex-USSR
11 May 2011
Lessons learned - general
• New health purchasers have been critical in
transforming (some) health systems
– Several countries demonstrated gains in “structural”
efficiency, redistribution, and targeting of entitlements
– However, little documented success in actually
improving quality through purchasing
– We’re still better at purchasing things we can count
• Accountability and governance structures did not
receive sufficient attention
• Management autonomy and skills have been
critical success factors
• Step-by-step implementation was important to
give time for institutions to mature
RBF/strategic purchasing as a key step
in process of building domestic health
financing systems and institutions
• Need to consider the purchasing institution(s) as
well as the technical mechanisms used to pay
providers
• Creating a strong purchasing agency as the
“change agent” in the reform process
– Requires consolidating fund pools
– Technical development on payment methods,
information management, provider autonomy, …
– And it takes time!
Pay for performance: lessons from
central/eastern Europe and ex-USSR
11 May 2011
A contextual challenge?
• How to attract and retain people with the
(scarce) skills needed to implement relatively
sophisticated purchasing and M&E systems?
– Kyrgyz hospital payment system was designed by
former rocket scientists(!), and availability of mid-level
technicians to run it who had little choice but to take
public sector job
– How to create enabling conditions for effective
purchasing on behalf of the entire population of most
LMIs, when it probably is not possible at civil service
salaries?
Pay for performance: lessons from
central/eastern Europe and ex-USSR
11 May 2011
Thank you
Pay for performance: lessons from
central/eastern Europe and ex-USSR
11 May 2011
An illustration of the problem:
government health spending by input
(prior to financing reforms)
Salaries and
social benefits
Utilities
Drugs and
supplies
Food
Capital and
repairs
Other
Moldova 2000
Kyrgyzstan 2001
47%
52%
27%
20%
14%
9%
6%
9%
6%
5%
4%
Aligning pooling and
purchasing for efficiency gain
The single payer reform and
downsizing in Kyrgyzstan
Pay for performance: lessons from
central/eastern Europe and ex-USSR
11 May 2011
Fragmentation and inappropriate incentives
as sources of efficiency problems
• Input-norm-based budgeting
• Fragmented and overlapping pooling and
purchasing, vertically integrated with provision
• Inherited clinical practice patterns
• Rising energy prices with transition to market
economy, combined with energy inefficient
buildings
• Difficulty in reducing staff numbers because of
social consequences of unemployment
• Inefficiencies had distributional consequences
– They manifested as the need to pay/provide own
inputs, which hit the poor hardest
Source/
collection
Oblast, rayon and
city administrations
Rayons
Oblast
Bishkek City
Finance Dept.
Republican
budget
City
city
health
department
Pooling
RFD
OHD
OFD
Purchasing
RFD
OHD
OFD
CHD
MOH
rayon
hospitals,
polyclinics,
SUBs, FAPs
Oblast
hospitals and
polyclinics
City hospitals
and polyclinics
Republican
health facilities
Provision
Population
MOH
Coverage
Coverage
Each oblast
Bishkek (and nearby)
1997 compulsory insurance fund adds new player
but doesn’t address underlying structure
Source/
collection
Pooling
Purchasing
Provision
Oblast, rayon and
city administrations
Social
Fund
Republican
budget
Rayons
Oblast
Bishkek
CRH
RFD
OHD
OFD
CHD
MOH
CRH
RFD
OHD
OFD
CHD
MOH
CRH, FAPs,
SVAs, SUBs,
FGPs,
polyclinics
Oblast
hospitals and
polyclinics
City hospitals,
polyclinics,
FGPs
Republican
health facilities
MHIF
Coverage
Population
Bishkek City
Finance Dept.
Each of Six Oblasts
Coverage
Covered persons
Bishkek (and urban Chui)
2001 “Single Payer Reform” eliminates
fragmentation within oblasts
Source/
collection
Oblast, rayon and city
administrations
Republican
budget
Pooling
Oblast level
TDMHIF
Purchasing
Mandatory Health Insurance Fund
Social
Fund
Republican
MHIF
(national
pool)
contracts
FGPs, oblast and rayon hospitals,
private pharmacies, etc.
Population of each Single Payer region
Coverage
Population
Coverage
Provision
Summary of Single Payer features
• Sources: local budgets, Republican budget,
payroll taxes, formal co-payments
• Pooling: Single pool for each territory (oblast),
and complementary national pool for “insured”
• Purchasing: purchaser-provider split; capitation
payment for PHC, case-based payment for
inpatient care
• Benefits: universal entitlement funded from local
budgets, complementary contribution-based
entitlement for insured funded from payroll tax
and Republican budget
Planned for years, but downsizing only
began after the incentives changed
Percent reduction in capacity in 2001 relative to 2000 levels
40
38.4
32.5
31.7
30.0
30
24.6
22.6
20
9.6
10
8.5
0
number of beds
number of
buildings
Chui
physicians
nurses
Issyk-Kul
Source: Socium Consult (2002)
Share of hospital expenditures spent
on patients increased
Direct medical expenditures (medicines, medical supplies, and food) as a
share of total public expenditures at the hospital level in the SGBP
32.7
35
30.5
30
25
20.4
20.1
20
15
10
5
0
2004
2005
2006
2007
Source: Mandatory Health Insurance Fund, Kyrgyzstan
Aligning pooling and
purchasing for redistribution
Centralization of pooling and change to
output-based payment for redistribution
in Moldova and Kyrgyzstan
Pay for performance: lessons from
central/eastern Europe and ex-USSR
11 May 2011
Moldova also eliminated fragmentation
with single national pool of funds
Source/
collection
Payroll
taxes
Central budget revenues
2/3
1/3
Pooling
National Health
Insurance Company
Purchasing
contracts
Provision
Coverage
Population
Health care providers
Insured population
1.1
1.0
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
Districts
2003
2004
Source: Shishkin et al. (2008). Evaluation of Moldova’s 2004 Health Financing Reform.
Copenhagen: WHO/EURO Health Financing Policy Paper 2008/3.
Dubasari
Hincesti
Ialoveni
Falesti
Telenesti
Singerei
Calarasi
Cantemir
Straseni
Leova
Rezina
Drochia
Cimislia
soldanesti
Briceni
Criuleni
Cahul
Nisporeni
Anenii Noi
Ungheni
Basarabeasca
Floresti
Causeni
Orhei
Donduseni
Riscani
stefan-Voda
Glodeni
Edinet
Taraclia
Soroca
0.0
Ocnita
0.1
UTA Gagauzia
Index of per capita spending relative to UTA Gagauzia
Centralized pooling combined with shift
from input to output-oriented payment
reduced geographic inequity in spending
Centralization of pool and continued
output-based payment in Kyrgyzstan led
to similar results in 2006
Index of per capita MHIF spending relative to Bishkek
1.1
1.0
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
Bishkek city
Chui
Issyk-Kul
Osh
Jalal-Abad
2005
Batken
Naryn
Talas
2006
Source: Financial Management Reports on execution of the State
Guaranteed Benefit Package and 2007 MOH Performance Indicator Report
Lessons learned – primary health care
• Capitation payment is a good start to equalize
resource allocation when moving away from
historical budgets
– Provider autonomy and improved management skills
are key
– Age, sex and other need adjusters in capitation
formula are important
• Not sufficiently powerful incentive to encourage
expansion of PHC task profile
– Limited patient switching weakens competitive drive
– Inherent incentive is to prescribe and refer  weak
early detection and chronic disease management
Lessons learned - hospital care
• The trend towards case-based payment was
driven by efficiency considerations and need for
purchasers to have activity information
• Case based payments indeed drive efficiency
improvement at the hospital level mostly through
volume increase
• Purchasing reform alone did not trigger
reduction of physical infrastructure
• To achieve better balance between different
levels of care, additional instruments needed
Pay for performance: lessons from
central/eastern Europe and ex-USSR
11 May 2011
Data
Month of
hospitalization
Number of interviews
As share of
hospitalization* in
month of survey
2001 February
2,913
7.4%
2001 July
3,731
9.9%
2003 April
4,440
9.5%
2004 April
4,534
8.0%
2006 October
5,337
9.4%
* Among hospitals contracted by the MHIF
Pay for performance: lessons from
central/eastern Europe and ex-USSR
11 May 2011
Total volume of informal payment decreased
In real terms @ 2001 prices
1,200
million soms
1,000
-22%
800
+37%
600
-63%
400
-54%
200
+18%
2001
2003
Personnel
Drugs
2004
Medical supplies
Other supplies
2006
Food
Pay for performance: lessons from
central/eastern Europe and ex-USSR
11 May 2011