How Russia Should Change Its Healthcare System?

Vitaly Omelyanovsky – Head of the Center for Studying Healthcare Finances at the Financial Research Institute of the Russian Ministry of Finance, MD, PhD, Doctor of Medical Sciences, Professor.

Over the last twenty years, Russia has significantly changed the way it finances healthcare. Before the collapse of the USSR, the nation’s healthcare system had been supported from the budget. June of 1991 marked the birth of health insurance in the country: In that month, the Russian parliament adopted a new law on medical insurance. In 1993, the government established one federal and eighty-nine regional funds for general medical insurance financed by employer contributions. Then, through the rest of the 1990s and 2000s, the government worked to segregate sources to finance public medical services.

Currently, the ambulance service is funded by general medical insurance, while the specialized medical services (such as dental and addiction services, as well as dermal surgery), and the hi-tech ones (for example, oncology and obstetrics), are supported by the federal and regional budgets. Organizations within the healthcare system also receive funds that are allocated through the Health national program.

According to the World Health Organization, the per capita public health expenditures, measured in purchase power parity, rose from $304.7 to $898.9 between 2003 and 2012. This, alongside the change in principles on which the financing of the healthcare system is based, improved public health records. According to the Russian statistical service, between 2003 and 2012, the mortality rate decreased from 18.4 to 14.5 per 1,000 people, while the infant mortality rate decreased from 12.4 to 8.2 per 1,000 live births.

The rise of life expectancy allowed Russia to join the Bloomberg ranking of healthcare systems – the latter includes countries with population of more than 5 million people, GDP per capita of more than $5,000, and a life expectancy of at least 70 years. In 2014, Russia took the last (51st place) ranking, which is lower than the position of Azerbaijan (49th place) and Belarus (42nd place). The reason for such a low ranking is the low correlation between the life expectancy rate and the level of health expenditures.

The WHO statistics shed light on the same problem: In 2012, total (public and private) per capita expenditures on healthcare measured in purchase power parity totaled $1,474. This level of expenditures is close to that of the new OECD countries, such as Poland ($1,489), Hungary ($1,729) and Chile ($1,606). However, Russia’s life expectancy (70.8 years) is significantly lower than that of Poland (77 years), Hungary (75 years) and Chile (80 years). This proves the argument that the increase in average life expectancy is dependent on the effectiveness of health expenditures rather than on size.

Why is the effectiveness of health expenditures so low in Russia? According to the Article 41 of the country’s Constitution, “Everyone shall have the right to health protection and medical aid; medical aid in state and municipal health establishments shall be rendered to individuals gratis, at the expense of the corresponding budget, insurance contributions, and other proceeds.” Such a statement would fit those countries that finance their healthcare systems by way of the national budget, such as the United Kingdom, Canada and Sweden, where free medical services are provided by public organizations.

Those countries that finance their healthcare systems through the insurance funds should segregate free and non-free medical services. The reason is that in such countries, free medical services are provided by both public and private organizations. For example, each year the French government approves a list of medical services that are financed by the national health insurance system. Regional governments use this to calculate money that should be allocated to the insurance funds.

Russia’s state program to provide free medical services should have determined a detailed list of these free medical services as well — and the terms and conditions of their provision, too. However, the Russian state program includes only the main types and forms of free health support. This raises questions on whether or not a particular medical service should be provided for free.

Another problem is that capital expenditures of the medical organizations are financed from the budgetary system. The procedure for granting the budgetary funds has yet to be formalized; as a result, their size depends on the amount of money that was spent during the previous fiscal year. It stimulates public medical organizations to increase their capital expenditures constantly. At the same time, private clinics that provide free medical services have no chance of receiving money from the budget.

The other cause of the ineffectiveness of health expenditures are the tight regulations offree medical services. In the early 1990s, private health insurance was just beginning to develop. That is why the government established territorial funds for general medical insurance, which were intended to purchase medical services, at that time. However, they do not carry out functions that are typical of insurance companies: They do not select providers of medical services, nor do they determine their tariffs. Moreover, they do not determine the terms and tariffs for the final consumers, and they do not take their individual health risks into consideration.

Currently, the commission on the development of the territorial program of the general health insurance distributes services among medical organizations and determines tariffs for them. However, its responsibility for the realization of this program is not determined by active legislation, nor are medical insurance organizations responsible for their own financial results:. Their deficit is financed by the reserve stock of territorial funds from general medical insurance.

Similarly, another barrier is citizens’ inability to pay for the medical services that are listed in the state program mentioned above with their own funds. This limits the additional charges that ought to be paid for every medical consultation; these charges could have reduced the number of medical consultations, while clinics could have had an important source of revenue. As a result of this ban, the money that Russians pay for  healthcare from their own funds is much higher (34.2%) than what the WHO recommends (15-20%).

To raise the effectiveness of healthcare expenditures, the government should take the following steps: First, it should provide a detailed list of free medical services and determine the terms and conditions of their provision. Second, the Cabinet should formalize the procedure for granting the budgetary funds to be used by medical organizations to cover capital expenditures; otherwise, it should introduce a capital expenditures component into the general medical insurance tariff.

Third, medical insurance organizations should be given the function to select their healthcare providers and determine their tariffs. As such, they ought to be responsible for their own financial results. And finally, the Cabinet should introduce additional charges, the size of which will be dependent on the frequency of preventive medical examinations.

However, all this is easier said than done.