The „toxic fallout“ after the „financial crisis“ in the Czech Republic. The example of Health care system. Ludwig O. Dittrich, Ph.D Ing. Dana Stará Czech.

The „toxic fallout“ after the „financial crisis“ in the Czech Republic. The example of Health care

system.

Ludwig O. Dittrich, Ph.D Ing. Dana Stará

Czech University of Life Sciences, Prague

Faculty of Economics and ManagementDepartment of Economic Theories

©2011

Health Care in Czech Republic

Financed by the universal health care insurance system (from 1992) through payroll tax, government pays for young, old and unemployed.

Fee for service and hospital budgets Health care insurance companies (currently 9), do

not offer commercial insurance product, except to foreigners

After1989 fast privatization of outpatient clinics began.

Health Ministry is in the charge of Health care legislation

Czech medical association – obligatory membership

Health Care in The Czech Republic

Fixed patient Copayments introduced in 2008 – charges for physician visits, hospital stay, prescriptions. Those copayments are revenues of providers and they are taxable by government

Variable copayments on drugs already in place last 15 years.

It is to early to evaluate the impact of new copayments by patients for contact with the health care system (charges for visits, hospital stay, charges for prescriptions). Today total copayments from all sources are estimated to be around 18% of the total financing available. In the year 2006 the total was about 13%

Financing of health careyear 2000 2005 2006 2007 2008 2009

public expenditure (health insurance corporation –

about ¾ of public expenditure, state and

teritorial budget)

amount (mill. CZK) 132962 191356 197027 206565 218719 239685

per inhabitant (CZK) 12943 18698 19191 20011 20971 22845

annual increase (%)   3.5 3 4.8 4.8 8.9

proportion in total expenditure(%) 90,5 87.5 86.9 85.4 82.8 83.7

private expenditure

amount (mill. CZK) 13873 27418 29783 35370 45801 46549

per inhabitant (CZK) 1350 2679 2901 3426 4391 4437

annual increase (%)   12.2 8.6 18.6 28.2 1

proportion in total expenditure(%) 9,5 12,5 13,1 14.6 17.2 18.3

total expenditure

amount (mill. CZK) 146835 218774 226810 241935 264520 286234

per inhabitant (CZK) 14293 21377 22092 23437 25362 27282

annual increase (%)   4.5 3.7 6.7 8.2 7.5

annual increase in (%) of total expenditure adjusted for inflation   2.6 1.2 3.9 1.9 6.5

Source of data: database of ÚZIS ČR

Czech Republic in international comparison in the year 2008

Source of data: database of OECD, WHO* y.2007, ** y.2006

Impact of financial crisis Real economy impact: Health care insurance companies

experienced decline in revenues, due to higher unemployment and lower wages.

The impact of “Fiscal responsibility” policy: Cuts in government employees salaries lower the revenues

available to health care system VAT increase drives cost of inputs to health care up Government refuses to consider increase in payment for

charges of state

“Financial crises” is used to justify major change in the health care delivery in the Czech Republic

Revenues and expenditures of insurance companies in years

2003 – 2009 (in mil. CZK)

Source of data: database of ČSÚ

Financial crisis did not cripple the insurance system

- Reserves of the system were used to handle current deficit

- Quality and health care access were not compromised

October 2010 – Physicians Union (physicians working in hospital sector) – reopened the long standing request to increase salaries of staff physicians in hospitals

About 3800 hospital physicians signed a declaration stating that they will quit by March 1, 2011, if their demands for higher salaries and changes in their working conditions are not met

February 2011 a compromise was reached - For most physicians (in hospitals), guaranteed salaries will increase by 15 to 20 percent immediately (other increases in upcoming years)

The Campaign with slogan „Thank you, but we quit“

Salary tariff tables for physicians.The average gross salary is about 23 thousands CZK/month

http://www.zbynekmlcoch.cz/info/ruzne/prumerne_platy_lekaru_v_cr_2010_2011_tabulka.html

What are they getting?

Proposal 1. Eliminate immediately 20% of acute beds. Most likely by closing

hospitals

Proposal 2. Introduce a reimbursement standards for

medical treatments

Proposals to remake the Czech health system

Financial crisis drives the need?

Number of hospital beds in CZ and Europe

Number of hospital beds is steadily declining from 1990 in CZ

Number of beds per capita comparable with regional standards. Germany and Austria higher per capita numbers, Belgium and France slightly lower.

Reduction desirable, or politically expedient to compensate for higher hospital physicians salaries?

Source of data: database of ČSÚ

Hospital bed capacity in CZ years 1970 -

2009

Reimbursement standards? Standards setting in this process mean, that central

authorities will attempt to write (rewrite) the nation insurance contract.

By excluding series of the procedures previously paid for by the contract, they open the door for chipping away at the portfolio of services covered by the nationwide health care insurance.

Therefore it is obvious that the standards are not intended to suggest an appropriate treatment algorithm for a specific set of conditions.

Standards (benefits guidelines) will determine what medical procedure will be paid for in full and for what procedures the insurance company will not pay. If numerous alternatives exist to treat a specific condition, only the “most effective” alternative will be paid for by the insurance system in full.

Privatization behind the financial crises smokescreen? The institutions in the existing insurance system were able

to accumulate sizable reserves before the year of 2008 due to fast growing economy. This accumulation happened on the background of “non – reformed” health care system. When economy entered the phase of slow down and decline, system exhibited deficits as would be expected and they were covered by reserves from previous years.

Therefore, the financial crisis did not reveal any unstable behavior in the delivery and financing of the health care system. The health care system responded to the down cycle as it would be expected.

Privatization behind the financial crises

smokescreen? (cont.) It means that the rush by the government to reform the system can’t be seen in the context of strengthening of the system against the adverse economic developments, since current system of financing was able to withstand the “financial crisis” shock. Data on last 2 quarters of 2010 shows pick up in the health insurance system revenues.

Governmental proposal of reimbursement standards and the acute bed reduction by 20% is in effect loping off the content and the size of health care package financed by public. It will have to end up with ramping up private sector participation. Private sector may, or may not pick up slack in the health care delivery of the complete portfolio of treatments. There is certainly no guarantee that the eliminated bed capacity of facilities will be returned to the

service of health care sector by private sector stepping in.

ALTERNATIVE ACTIONS TO SHORE UP FINANCING OF THE SYSTEM IN SHORT AN INTERMEDIATE PERIOD

In order to strengthen in upcoming years inflows of revenue to the system, three relatively easy measures could be adopted. (Association of Czech and Moravian hospitals)

First. The ceiling on payroll tax amount used to finance health care should be removed. Estimated effect is about 1 Billion CZK (Little over 50 million USD)

Second. Increase the mandatory payroll tax from 13.5 to 14.0 %. The effect on revenues is increase inflow by 6 billion CZK.

Third. Some portion of sale taxes revenues on tobacco and alcohol reallocate to health care, since those substances increase the cost of the health care. The effect on revenues is increased inflow by around 3 billion CZK.

Long term solution to rising medical cost

Results of recent study by (Elliot S. Fisher et.al., 2009) suggest that the answer for the pervasive cost increases in some medical segments may be found in the way how physicians respond to the availability of technology, capital and other resources in the context of the fee-for-service payment, volume based system. Physicians tend to scale up “extensive and intensive” margin of treatments

In the Czech health care system, which also can be characterized as predominantly volume based, fee - for - service system, the supplier induced demand for services may be the central mechanism contributing to the rapid health care expenditure growth. Financial crisis and the squeeze on financial resource going to health care now and in the future should bring research on this aspect of health care expenditure growth to the focus of physician’s community and policy makers alike.

Conclusions

Under the smokescreen of financial crisis, the current political leadership is preparing profound transformation of the hospital sector and the public health care insurance system via privatization.

The real long term solution to rising cost of health care needs to start with incentive structure leading to change in physician behavior