Planning, Budgeting, and Health Care Performance in Ukraine

Abstract

The Government of Ukraine has not pursued health care reforms now commonplace in the rest of Europe and Central/Eastern Europe that rely less upon centralized, state delivery of services and more on decentralized operational responsibilities and competition for services that increase patient choice. The Ukrainian health sector suffers from personnel overspecialization and facility overcapacity, resulting in high-cost, low productivity services. Budget funds are unavailable for operations and maintenance resulting in poor quality services. The state provides health care as a constitutionally-protected monopoly, relying on the traditional command and control model which ignores cost/quality competition options and responsibilities to patients. Overall, the system which produces these results is over-centralized, requiring achievement of physical service norms without providing sufficient funds. The centralized system does not monitor or evaluate services beyond narrow financial accountability and control requirements. The health care system is paradoxically over-centralized but unable to regulate or control local health care official decisions to ensure compliance with national standards. Needed are reforms in the health care policy and operational areas to produce the supply of services needed for national economic recovery. In the short-term, the budgetary framework can be improved as an operational/management guide through development of comparative information on results. Most of this information can be based on the economic classification consistent with the chart of accounts. Funding stability can be increased to improve expenditure control by implementing a new fiscal transfer formula that provides discretion (i.e., block grants) and performance criteria (i.e., outcome measures). In the medium-term, building on the technical foundation of physical norms and statistical reporting, the health care budgeting and financial management system should shift emphasis to: program planning, policy and management analysis, and public communications. The results of these reforms should lead to decentralized health care operations, service analysis, and delivery responsibilities. At the same time, the reforms should lead to proper centralization of responsibilities for strategic policy decisions, safety regulation, national standards, and program evaluation.

Keywords:

• Ukraine budget system
• Health care performance
• Program and fiscal decision-making
• Institutional problems in the health care sector

Notes

^aThe following dialogue tells most of the story:

“The (Ukrainian) doctor examined my EKG, frowned, and took my blood pressure… ‘Drink any cognac recently?’ ”

“Why, yes in fact. The other day I had a couple of snifters with a friend.”

“What was the brand name?”

“I don’t know. What does that have to do with my EKG?”

“How much did the bottle cost?”

“About five dollars—a standard price.”

“Oho! That's what did it. It raised your blood pressure. It's a bit high.”

“What had the price of cognac have to do with anything?”

“Listen, real cognac—the Armenian kind that in Soviet days used to be sold everywhere—costs a hundred dollars a bottle now and lowers the blood pressure. . .”

^bBeginning in FY 2001, a new transfer system will function to stabilize and clarify expenditure allocations from the center. Previous allocations were largely negotiated which produced inequities and inefficiencies in health care. The formula allocates funds directly to the oblasts which are required to determine their transfers to rayons based on a methodology set out by the Cabinet of Ministers. The formula methodology subtracts a measure of revenue capacity from a measure of expenditure needs.

^cIn FY 2000, tax-sharing revenues were substituted for transfer revenues, undermining the notion of fiscal incentives for local revenue mobilization. Unsurprisingly, there has been little interest in formal budget analysis or complex priority-setting by sectoral ministries or local governments when it was known in advance that resources can meet only about 10% of their needs.

^dThe budget will be developed according to medium-term planning principles in a 3-year framework. Program budgeting is gradually being introduced. The number of spending units has been decreased from 201 to 78 and the aim is to have one key spending unit implement a budget program. The current budget classifies expenditures by functions and line-items, e.g., health and salaries. Programs differ from functions in that they have clear goals and measurable benchmarks for expected outcomes (i.e., “quality patient days” delivered with qualified personnel present, functioning equipment and available medicines).

^eThe new formula will add to the complexity of preparation by requiring more calculations for additional items, but it should ensure greater transparency and funding stability. The proposed formula will itself only determine the level of transfers and not mandate the direction of expenditures. The direction of expenditures is still effectively mandated, however, by the relevant features of the norm system and budget law operating jointly on management decisions. Despite discussions of the “block grant” notion, what is not likely to change in the short run is the tendency to determine priorities from the center.

^fAs occurred with this system throughout the former Soviet Union, the norms generated incentives to overallocate resources to salaries and institutions which more or less worked in the context of free money and unlimited plenty produced by transfers from Moscow under the old system. The norms did not produce cost-effectiveness or efficiency. Now the norms serve to lock-in inefficiencies from the center. It is recognized that the norm system has outlived its usefulness in the context of scarce resources. The new normative method of calculating transfers should permit local governments to optimize the use of resources for health and other services. Decision-making authority and information will be shifted to the facility level for most transactions, allowing managers to combine resources for better service results. The short-term incentive is fiscal authority to allocate up to 10% of oblast consolidated revenues to smooth out budget disruptions. In addition, the Council of Ministers has adopted program budgeting for 2002 (i.e., budgeting according to tasks, goals, and measurable benchmarks as opposed to existing functions such as health). This should lead to forward expenditure programming on the basis of outcomes and use of performance data to allow monitoring and evaluation of expenditures.

^gAmong public hospitals in Ukraine, the same market dynamics are evident. Funds must be found for medicines and O&M. Salaries are low but absorb most of their budgets. Improved care will require competition for paying patients. Those hospitals and clinics that cannot generate demand should be consolidated or closed. Several hospitals have piloted competitive schemes for revenue generation from which to finance improved services for vulnerable groups and the poor. For example, in FY 2001 some urban hospitals have leased part of their premises to cover state budget shortfalls for FY 2000. Urban hospitals, such as Kyiv #1, favor a system of decentralized performance-based block grants to rayon and oblast hospitals. They also favor a larger role for the MOH in budget allocations. Current allocations result largely from MOF macroeconomic considerations. All these suggestions are hardly radical in Europe and are merely consistent with EU standards.