Public Health Reforms in Bosnia and Herzegovina - A Case Study

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2 PUBLIC HEALTH REFORM IN BOSNIA AND HERZEGOVINA II NATIONAL HEALTH ACCOUNTS IN BOSNIA AND HERZEGOVINA REPORT FOR PERIOD

3 National Health Accounts Working Group within the Public Health Reform II Project mr sci Eva Zver mr sci Stane Marn mr sci Sabina Šahman- Salihbegović Dalibor Pejović Gorana Knežević Aida Eskić Pihljak Amra Fetahović mr Tijana Spasojević Nermin Muratspahić Mediha Skulić Nijaz Avdukić Zlatan Tabaković dr Irena Jokić Slavica Buntić-Irznić mr sci Slobodanka Stjepanović- Broćilo Rada Radanović Milena Babić Snježana Ivanković Consultant Consultant Ministry of Civil Affairs BiH Ministry of Civil Affairs BiH Agency for Statistics BiH Agency for Statistics BiH Directorate for Economic Planning BiH Agency for Drugs BiH Ministry of Health FBiH Office of Statistics FBiH Institute for Development Programming FBiH Health Insurance and Reinsurance Fund FBiH Public Health Institute FBiH Ministry of Finance FBiH Ministry of Health and Social Welfare RS Institute of Statistics RS Health Insurance Fund RS Ministry of Finance RS 3

4 dr Dijana Štrkić Branimir Filipović Senija Fačić Rasim Karić Public Health Institute RS Department for Health and Other Services BD Agency for Statistics BiH Branc office BD Health Insurance Fund BD 4

5 TABLE OF CONTENTS TABLE OF CONTENTS... 5 ABBREVIATIONS... 6 MAIN MACROECONOMIC AND HEALTH INDICATORS FOR BIH:... 8 SUMMARY INTRODUCTION SYSTEM OF HEALTH ACCOUNTS International Classification for Health Accounts (ICHA) DEVELOPMENT OF THE NHA IN BIH ANALYSIS OF HEALTH EXPENDITURE IN BOSNIA AND HERZEGOVINA IN THE PERIOD Purpose of analyses and source of the data Main indicators of health expenditure Financing of health care Public expenditure Private health expenditure Health expenditure by functions Capital formation Current health expenditure Medical goods pharmaceuticals and therapeutic appliances Total pharmaceutical expenditure inpatient and outpatient Preventive care Governance of health care system and health insurance administration NHA for BiH-Tables REFERENCES

6 ABBREVIATIONS AFIP HBS BD BHAS BHAS EBD BIH COFOG COICOP DOH ECHI EUROSTAT FBiH FHIRF FMOH ICHA-FS (FS) ICHA-HC (HC) ICHA-HF (HF) HIF ICHA-HP (HP) HRA FBiH ICHA ISIC JQ MOCA MOHSW NHA Agency for financial, information and agent services Household Budget Survey Brcko District Agency for Statistics of BiH Agency for Statistics of Bosnia and Herzegovina Branch Office Brčko District of BiH Bosnia and Herzegovina Classification of the Functions of the Government Classification of Individual Consumption by Purpose Department of Health European Community Health Indicators Statistical Office of the European Communities Federation of Bosnia and Herzegovina FBiH Health Insurance and Reinsurance Fund FBiH Ministry of Health Classification of Revenues of Health Care Financing Schemes Classification of Health Care Functions Classification of Health Care Financing Schemes Health Insurance Fund Classifiaction of Health Care Providers Health Resource Accounts for Federation of Bosnia and Herzegovina International Classification for Health Accounts International Standard Industrial Classification Joint SHA Eurostat/WHO/OECD Questionnaire Ministry of Civil Affairs Ministry of Health and Social Welfare (in the Republika Srpska) National Health Accounts 6

7 NHA BD NHA FBiH NHA RS OECD OOP PHI FBIH PHI RS PHI-HC BD PPP RC RIS RS RS SHA SNA THE UNECE WHO National Health Accounts Brčko District National Health Accounts Federation of Bosnia and Herzegovina National Health Accounts of the Republic of Srpska Organization of Economic Cooperation and Development Out-of-pocket payments Public Health Institute of Federation of Bosnia and Herzegovina Public Health Institute of the Republic of Srpska Public Health Institution Health Centre Brčko District Purchasing Power Parity Classification of Resource Costs in Health Care (ICHA-RC) Republic Institute for Statistics of the Republic of Srpska Republic of Srpska The System of Health Accounts The System of National Accounts Total Health Expenditure United Nations Economic Commission for Europe The World Health Organization 7

8 MAIN MACROECONOMIC AND HEALTH INDICATORS FOR BIH: M A I N I N D I C A T O R S f o r B i H Source MACROECONOMIC INDICATORS Nominal GDP (in million BAM) BHAS 24,202 24,773 25,666 EU-27 average Real GDP per capita PPP USD WHO 8,542 8,635 9,076 32,724 GDP, nominal growth rate (%) GDP, real growth rate (%) BHAS GDP per capita (in BAM) BHAS 6,298 6,446 6,684 GDP deflator DEP Number of employed persons 1 697, , ,036 2 Employment rate (%), (ARS-ILO) 3, Number of unemployed 4 ARZ 497, , ,661 Unemployment rate (official statistical data),(%) ARZ Unemployment rate WHO Average salary (in BAM) BHAS Average pension (in BAM) DEP Consumption prices, inflation (average annual change) (%) BHAS Exchange rate KM/EUR DEMOGRAPHIC INDICATORS Population (estimate) BHAS 3,842,566 3,843,126 3,839,737 Live born / 1000 population BHAS 9, ,5 Fertility rate BHAS HEALTH STATUS Life expectancy WHO db NA NA Life expectancy, men WHO db NA Life expectancy, women WHO db 78.8 NA Infant mortality (per 1000 live born) BHAS Eurostat Mortality from all causes (per 1000 population) Standardised death rate (SDR)/ population (all causes and all ages) MoCA/WHO Smoking (adults) RISK FACTORS (life style) PHI FBiH (survey) 37.6% M: 49.2% F: 29.7% 37.6% M: 49.2% F: 29.7% 37.6% M: 49.2% F: 29.7% Alcohol consumption (in litres of pure alcohol per capita per year) WHO ,7 RESOURCES / POPULATION NA Doctors, total I/I/D Average number of employed persons in March and September of current year 2 DEP: Data received from BHAS upon official request 3 Labour Force Survey 4 Annual average of monthly number of unemployed 5 Average pensions were calculated on the basis of entity level pensions weighted by ration of total number of pensioners in each of the entities in BiH 6 Strengthening of public health institutes in BiH (EC/BiH/08/027) 7 Public Health Institute of FBiH, Public Health Institute of RS, Department for Health BD 8

9 General practitioners I/I/D Dentists I/I/D Pharmacists I/I/D 64 Nurses I/I/D Midwives I/I/D Number of acute hospital beds I/I/D Number of CT machines Number of MRI machines PET (Positron Emission Tomography) PREVENTIVE HEALTHCARE Percentage of one-year old children that received polio vaccine MoCA HEALTHCARE UTILISATION... Average length of stay (days) WHO/Institute s Number of visits to general/family practitioner per capita Institutes Number of hospital discharges per population Institutes 9 10,300 10,615 10,897 n.a Number of insured persons HEALTH INSURANCE FHIRF, HIF RS and HIF BD 10 3,062,493 2,998,087 3,006,254 HEALTH EXPENDITURE Total health expenditure, in % GDP NHA BiH Total health expenditure per capita, in purchasing power parity (PPP $US) NHA BiH ,231 Public health expenditure, in % GDP NHA BiH Public health expenditure per capita, in purchasing power parity (PPP $US) NHA BiH ,455 Public health expenditure, in % of THE NHA BiH Out-of-pocket heatlh expenditure, in % of THE NHA BiH Expenditure for in-patient care, in % of current health expenditure NHA BiH ,4 Expenditure for outpatient care, in % of current health expenditure NHA BiH Expenditure for medical resources, in % of current health expenditure NHA BiH Public expenditure for medical resources, in % of current health expenditure NHA BiH Expenditure for prevention and public health, in % of current health expenditure NHA BiH Health expenditure systems and health insurance administration, in % of current health expenditure NHA BiH Public Health Institute of FBiH, Public Health Institute of RS, Department for Health BD 9 Public Health Institute of FBiH, Public Health Institute of RS, Department for Health BD 10 Data for Brčko District on the basis of official request by DEP 9

10 SUMMARY Expenditure on health absorbs a significant and growing share of economic resources and it is expected that, due to demographic and non-demographic factors, there will be large pressure for further health expenditure growth in the next decades. That emphasizes the need to increase efforts to slow down the growth of public health expenditure, especially by improving regulatory framework for increase of efficiency in financing and provision of healthcare services. Health financing and health expenditure indicators, which are important for monitoring of the health system, need to be comparable within the country and with other countries; otherwise, they give incorrect estimates of financial needs and resource allocation. That is why the System of Health Accounts SHA) is used as a standardized tool for health expenditure indicators. SHA covers series of very detailed and precise classifications of the financing sources, providers and functions of healthcare system, and it allows that with cross-classifications of adequate expenditure in tables one gets overview of health expenditure structures. In the period of , the European Commission has, within the Public Health Reform II Project (PHR II) 11, funded development of methodology and monitoring of health expenditure in Bosnia and Herzegovina (BiH) according to SHA 2011 methodology. Development of National Health Accounts (NHA) requires political commitment, clear institutional responsibility and cooperation of institutions that have relevant sources of data and that use data on health expenditure for monitoring and managing of health policy. By developing health accounts one creates conditions for formation of optimum model of organization of functioning and rational expenditure of resources in healthcare. Purpose of the analysis of indicators of health financing and expenditure prepared for this report is to show the possibilities offered by NHA as basis for health policy on macro level. Indicators give us information on general trends of health expenditure in BiH 12 and enable international comparisons that warns us of the areas in which BiH deviates from other European countries. Such internationally comparable analysis can serve as additional argument in formulation of goals and setting of health policy priorities. At the same time, these indicators are also a tool for monitoring and evaluation of reaching the set goals. 11PHR II Project lasted in the period 5 December December Framework Agreement for Peace in Bosnia and Herzegovina (Annex 4), Bosnia and Herzegovina consists of two entities: the Federation of Bosnia and Herzegovina and the Republic of Srpska. Jurisdictions of Bosnia and Herzegovina are prescribed by Act III of the Constitution of Bosnia and Herzegovina: foreign policy, foreign-trade policy, tariff policy, monetary policy, as stated in Act VII; financing of institutions and international obligations of Bosnia and Herzegovina; politics and regulations concerning immigrants, refugees and asylum; conducting international and inter-entity criminal-justice regulations, including relations with Interpol; forming and functioning of mutual and international means of communication; traffic regulations among entities; air traffic control. According to the Constitution of Federation of Bosnia and Herzegovina, Federation of Bosnia and Herzegovina is one of the two entities in country of Bosnia and Herzegovina and has the power, jurisdictions and responsibilities which are not stated in inclusive jurisdictions of Bosnia and Herzegovina. Federation of Bosnia and Herzegovina consists of federal units (cantons). According to the Constitution of the Republic of Srpska, the Republic of Srpska is unique and inseparable constitutional entity, which, on its own, performs constitutional, legal, executive and judicial functions. All state functions and jurisdiction belong to the Republic of Srpska, except those that are clearly transferred, according to the Constitution of Bosnia and Herzegovina, to its institutions. 10

11 The analysis of indicators was prepared based on preliminary results 13 of NHA for BiH, Federation of BiH (FBiH), Republika Srpska (RS) and Brčko District (BD) for the period , prepared within the PHR II Project by November For the level of BiH, NHA tables were prepared as sum of tables of NHA for FBiH, RS and BD, which lay out health expenditure systems in entities and the District. On the level of BiH, there is no special healthcare system. That means that all health expenditure indicators in BiH, presented in the analysis, tables and charts in this report, are a sum of expenditure indicators in FBiH, RS and BD. NHA tables for FBiH, RS and BD, with all results, are in the Annex to this document. The main results of the analysis: Basic indicators percentage of GDP and per capita expenditure Total health expenditure (THE) in BiH for 2011 was million BAM; whereof public expenditure represented 72%, and the private expenditure represented 28%. In 2010 and 2011, a real growth of public expenditure was on the average of 2.6% annually and a negative growth rate of private expenditure, which decreased in 2010 for 4.9% and in 2011 for 1.1%. The growth of public expenditure was the highest for specialized outpatient curative care services and pharmaceuticals, and decrease in private expenditure was caused mainly by lower out-of-pocket expenditure for pharmaceuticals, but also by generally lower household consumption due to economic crisis. The public and private health expenditure in GDP (7.2%; 2.8%) is very high for the achieved level of the BiH's economic development, but on the other hand, due to low GDP per capita, the health expenditure per capita are still low (895 USD PPP) and therefore influence seeking the health care services in the private sector. The high level of private health expenditure in GDP (2.8% in GDP) are caused by relatively low public health expenditure per capita, that cannot satisfy high health related expectations of the population (high rate of educated population, availability of information, close relation with the European countries), which influences seeking the health care services in the private sector. - Expenditure by financing schemes public and private expenditure The share of public health expenditure in the total health spending is relatively high (BiH 72%; EU: 76%) mostly due to a long tradition of the social health insurance (high share of public expenditure is for the same reason typical for all countries of former Yugoslavia). The compulsory health insurance participate in the public spending structure with more than 90% (in the total health expenditure structure with 65%) and the budget with 9% (6% of the total spending). It means that the share of the budget (tax) 13By the end of January results for NHA for 2012 were prepared, as well as final results for NHA for period for FBiH, RS, BD and BiH. Data for entities will be published by Ministry of Health and Social Welfare RS, Ministry of Health of FBiH, Department for Health and Other Services BD, in the form of WHO Mini Questionnaire (see in Annex). Data for level of BiH will be, for the first time, published in 2014 by Agency for Statistics BiH, which will, by the end of May 2014 send the data for BiH for the period to Eurostat (Joint SHA Questionnaire). For the level of BiH, data will be published also in the form of WHO Mini Questionnaire by both World Health Organization and Ministry of Civil Affairs of BiH. 11

12 financing is very low even when we compare BiH with other countries that have similar system of the social health insurance. In the developed countries, the social health insurance systems are moving towards mixed health care systems (a mix between the Beveredge's and Bismarck's health care system). The structure of financing public health care system in a long term in BiH is not financially sustainable due to the fact that because of ageing the number of employed persons paying the contributions will decrease; besides, there is also a problem of system's sustainability in case of the economic crisis namely in the case of increased unemployment rates. The share of private health expenditure in THE in 2011 was 28.3% (2.8% BDP). This share is higher than EU average (24%), but it is not high compared to other lower developed countries that mainly have low public health expenditure. In the period private health expenditure decreased for 6.0%. Mostly due to the fact that spending on pharmaceuticals decreased (new pharmaceuticals were included in positive lists), but also due to general decrease of total household consumption due to the economic crisis. In the structure of private health expenditure, the share of direct household out-ofpocket spending was in %, the share of the voluntary health insurance only 0.8% and the share of private companies 2.4%. Both formal and informal payments 5 are included into the direct household out-of-pocket expenditure. The formal payments are: formal copayments in the public health care institutions and copayments for medicines, other direct payments made to private health care practitioners (dentists, specialized services, diagnostics, glasses, etc.) and payments for the over-the-counter drugs and other therapeutic aids. Informal payments 5 are the highest for inpatient care. In the structure of private health expenditure the highest share goes on medicines and therapeutic aids (58 %), followed by outpatient and inpatient care (in the inpatient care the highest share refers to informal payments 5 to the medical staff at hospitals). the share of private expenditure in the structure of financing certain health care functions in BiH are above the EU average for inpatient care (because of high informal payments 5 ), for dental outpatient care (most of the population uses the services of the private dentists; chart 13) and for medical goods (including formal cost-sharing and high payments for over-the-counter drugs Expenditure by health care functions: In the period the capital investments in the BiH health care system were reduced from 168 to 152 million, which amounts around 13% in real terms. Therefore, in the structure of THE the investments were reduced from 6.9% in 2009 to 5.9% in In the period in the structure of expenditure by functions the share spent on outpatient care increased (from 23% to 25%) and share spent on inpatient care decreased (table 5 and 6). This can be characterized as positive. It is also positive that the expenditures on medical goods drastically reduced in the structure of private expenditure (from 59% to 55%). On the other hand, we can note as negative reduction of the share of public expenditure spent on preventive care (from 2.2% to 1.8%) and the 12

13 increase of public funds for the governance of health care system and health insurance (from 3.8% to 3.9%). In most EU countries, the share of expenditure on outpatient care is higher from the share for inpatient care, while in BiH the share on inpatient care (38%) is significantly higher than the expenditure on outpatient care (29%). The share on long-term health care in BiH (1%) is very low and far beyond the EU average (10%). Untimely long-term health care for elderly and chronically ill patients is reflected in the higher expenditure on acute care, which is much more expensive. In 2011, 28% of THE were allocated for the medical goods (pharmaceuticals and therapeutic aids, HC.5) which is above the EU average (23%), but relatively low when compared to other lower developed European countries. The main reason for the increase of public expenditure was the enlargement of the list of drugs that are covered from the compulsory health insurance and the introduction of new, more expensive drugs on the lists, which influenced the reduction in private spending on medical goods for 7.2% (-5,3 in 2010 and -1,8 in 2011). In the financing structure, the private expenditure on medical goods decreased from 62% in 2009 to 58% in The share of private expenditure in financing medical goods for outpatients in BiH was 58% in This amount is high when compared to other European countries. In 2011 in BiH only 1.3% of THE was allocated for the preventive care, which is far beyond the EU and OECD average (3.9%) In the period the expenditure on preventive care had a negative growth trend and were reduced for 13.6% in real terms, regardless of the fact that the share of expenditure on preventive care is already very low During the economic crisis, many countries have reduced expenditure on preventive care due to the need for consolidation of public finances, and usually more than other expenditures on health. The WHO warns that the reduction of investments in the prevention will have a negative effect on health expenditure growth in a medium and long-term. In % of THE in BiH was allocated for the governance of the health care system and health insurance administration, which is close to the EU (3.1%) and OECD (3,0%) average. This share is not high for a country that has many levels of authority and great number of health insurance funds (in In the period the expenditure for the governance of health care system were kept at the level of 3.0% of the THE (FBIH: 2.8 %; RS: 3.9%), ), but it should be noted that the public expenditure on the governance of health care system increased in that period for 7.3 % in real terms. Recommendations The share of public health expenditure in the GDP is very high for the achieved level of country's economic development it is necessary to undertake measures to limit the growth rate of expenditure from compulsory health insurance so that in the medium term period the expenditure of the compulsory health insurance on average do not increase faster than GDP (it means that share of public health expenditure in GDP in the medium term would not increase). 13

14 Social health insurance funds and health care institutions should work with in advance limited budget, without any deficit and without debts, which means that they would work in the framework of a balanced annual financial plan. If the incomes in the compulsory health insurance system are low due to the crises and cannot cover the expenditure, measures should be taken as to increase incomes (to expand the base of contribution payments to all incomes and to align contribution rates to all population groups), but at the same time to increase efficiency in provision of the services. Stabilization of the compulsory health insurance system by higher revenues (broadening the contribution rate and increasing it for some groups of population, sin taxes), but in a way not to have the public health spending increasing faster than the GDP growth rate. Medium term and long term gradual introduction of a mixed system of health care financing stabilization of the social health insurance system by boosting up the transfers from the budget and by increasing direct budget financing of the health care. The contribution rates for compulsory health insurance in BiH are very high for employed persons (in FBiH: 16.5 %; RS: 12 %). They cannot be increased anymore, and actually should be lowered, but first the base for paying contributions to compulsory health insurance should be expanded in a way to broaden the base for contribution payment to all incomes (i.e. fees, awards, dividends, rents) and to have the contribution rates aligned for all insurance categories (i.e. self-employed, farmers). Such a measure would increase solidarity in contribution payment and would in general lower labor force costs and it would have good effect to increase of economic competitiveness in general Using measures to increase efficiency of health care system and to increase available public funds for the health care: o Redefining the scope of benefits covered so as to incentivize the cost-effective use of treatments; o Redesigning the cost-sharing for pharmaceuticals in a way to have higher use of the cost-effective medical goods, as generic medicines; o Reconsidering the cost-sharing for health care services in a way to incentivize the cost-effective use medical services (to have the patients not using some of the service that do not have an important effect on treatment for example patients' transport, spa treatments), but at the same to introduce protection of the vulnerable groups of the population. Auditing the prices of health services and the prices of the medical non-durables in the hospitals. To decrease hospitals' deficit by strict control of the budgets, which means that the hospitals can get the loans only if approved by the competent ministry along with increasing responsibility of the management at the hospitals. To increase efficiency at the hospitals by decreasing the volume of corruption of the staff at the hospitals (institutions competent to fight against corruption should deal with the corruption in the health care, especially regarding prices and the procedure of procuring medical goods and materials for the hospitals). Introducing fiscal measures as for example increasing so called sin taxes : taxes on tobacco, spirits and sweet drinks. These measures are cost-effective in the sense of disease prevention and do have a positive effect on lowering health related spending. 14

15 To be able to decrease out-of-pocket payments on health care in BiH it is primarily necessary to increase efficiency of invested public sources, which do not meet high expectations of the citizens related to their health and to health care services. Caution is needed regarding lowering doctors' wages in the public sectors, since the wages need to be satisfactory (in the most of the developed OECD countries the wages for medical doctors are higher from the average wage of the persons with the tertiary education level). The empirical studies and the historic experience suggest that lowering wages of health care professionals is not viable in the medium and long term, because the wage policy in the health sector has to remain competitive as to attract young, educated professionals. It is necessary to undertake measures to reduce informal payments to health professionals in the hospitals (control of prices in the hospitals, surveillance, and cooperation of the hospital management with the institutions competent for the fight against corruption). Supporting development of voluntary health insurances, which now in BiH have very limited space for development. Development of private health insurances could reduce the burden of direct out-of-pocket spending. It is necessary to continue the trend of faster growth of public expenditure for outpatient health care in regard to inpatient care. Relatively high expenditure on inaptient care services in BiH confirms that the public funds are spent inefficiently. The health care system should be more directed towards outpatient services (primary level and outpatient specialized curative care). DRG payment system for services of hospital health care in whole BiH has to be introduced as soon as possible in order to achieve more efficient payments of health care services. To increase the use of primary health care measures such as sufficient number and good geographic distribution of trained practitioners of primary health care and nurses must be implemented. An efficient system of gatekeepers has to be introduced so that patient would not seek more expensive consultations with specialists and doubling medical diagnostics (to establish doctor surveillance over referral of the patients to the higher level) Efficient system of health care services coordination has to be introduced between the different levels of health care. IT system enabling monitoring the patients has to be introduced. By regulating pharmaceutical market, one can achieve high increase of efficiency of spent funds on health without jeopardizing health care quality. To continue introducing measures to mitigate the growth of pharmaceuticals' prices: o Regulating the price of pharmaceuticals by classifications on the positive and negative lists, o Introducing the system of interchangeable pharmaceuticals with the high acknowledge value, o Introducing the system of therapeutically replaceable pharmaceuticals with the highest acknowledge value, o Introducing a system of monitoring doctors when prescribing the pharmaceuticals. 15

16 The share of private expenditure in the structure of financing pharmaceuticals is still very high (68%). In order to reduce the share it is necessary to continue introducing new pharmaceuticals to the positive lists, however by investing public sources that were previously saved with different measures to reduce pharmaceuticals' prices. Introduction of financial participation on pharmaceuticals in order to use cost-efficient pharmaceuticals, as generic medicines Transparent and systematic introduction of new treatments and pharmaceuticals using health technology assessment HTA. To initiate as soon as possible systematic increase of public funds for preventive care and public health. In the planned budgets and funds for the next years, the growth rates of expenditures on prevention and public health should be higher than growth rates of the total public health expenditure. To consider possibility of introducing special incentives in salaries of primary level medical doctors aimed at increasing the provision of preventive health care services. For public health and preventive healthcare BiH allocates only about 1.3% of current expenditure, which is quite below EU and OECD average (3.2%). During the period from 2009 to 2011 BiH has recorded negative growth trend in the expenditure allocated for preventive healthcare, with real decline by as much as 13.6% regardless of the fact that the share of allocation of funds for preventive healthcare has already been relatively very low. There are many countries which are experiencing crisis and which have reduced spending on preventive healthcare, because of consolidation of public finances, generally in greater percentage than reductions that were made in other healthcare segments. In relation to the aforementioned, the World Health Organization has warned that the reduction of investment in prevention will, in medium and long term, have adverse effect on healthcare expenditure. In 2011, BiH has allocated 2.9% for governance of healthcare systems and health insurance funds, from the current health care expenditure, which is close to the EU average (3.1%). The share is not too high for a country that has multiple governmental levels and large number of health insurance funds (FBiH). Health expenditure administration costs have stayed at 3% of the current expenditure, from 2009 to 2011 (FBiH 2.8%, RS 3.9%); however it should also be mentioned that the expenditure administration of the public healthcare systems have increased (in real terms by 7.2%). The share of expenditure on the governance of health system and health insurance administration in THE should not increase in the future, which means that they should be planned in regard to the growth rate of other public health expenditure, namely also in regard to planned GDP growth. 16

17 1. INTRODUCTION The health care systems in the developed countries, as well as in BiH, are facing the problem of the rapid growth of health care expenditure. The reasons of the growth are connected to the improvement of medical technology, higher citizens' expectations related to the health, medical inflation, different institutional factors and ageing of the population. Increasing resources in the health care systems influences improvement of the citizens' health contributing to the economic prosperity through increasing participation at the labor market and productivity, and in the future, it will be very important in the context of population aging and longer working life. On the other hand, health expenditure use greater shares of the economic resources and it is expected that the growth of the health care expenditure due to demographic and nondemographic factors will be under a great pressure in the decades to come. Most of the empirical researches and long-term projections indicate that the portion of the public expenditure for the health care will be significantly increasing in the GDP of all EU member states. At the same time, recent deterioration of the fiscal position and the increase in the state debt make the fiscal sustainability of the health care system more important in the establishment of the viable public finances (European Commission, 2012b). Therefore, the need to increase efforts to lower the pressure on the expenditure growth has been underlined using improvement of the regulatory frameworks of the health care systems, and by increasing financing efficiency and provision of the health care services. Health care reforms and changes in financing the health care should be based on relevant analyses, which are founded on statistical data collected according to the international standards. The international institutions have developed the methodology System of Health Accounts SHA 14 as an answer to the needs of health policy. It was also used as a tool for the presented analyses of the health care expenditure in BiH. The activities for establishing, developing and analyzing National Health Accounts in BiH were implemented as part of the Project Public Health Reform II (hereinafter: PHR II), financed by the European Union in the period December December The mandate of the NHA working group was directed towards improving the NHA reporting system in BiH, which in the last years have become one of the most important elements in the system of collecting statistical data in the field of health care in the framework of the international institutions (European Commission, Eurostat, WHO and OECD). The report National health accounts in Bosnia and Herzegovina report for the period in its first part shortly represents the SHA 2011 methodology and the institutional framework for development of the national health accounts in BiH in accordance with the document Guidelines for development of national health accounts in BiH 15. The second part of the report is dedicated to the analyses of the internationally comparable indicators of health 14 International institutions, Eurostat, OECD and WHO, had in December 2011 published revised methodology for making NHA - System of Health Accounts, 2011 (SHA 2011). 15»The Guidelines for development of national health accounts in BiH«were finalized in July 2013 as part of the Project Public Health Reform II. The document is available on the web page of the BiH Ministry of Civil Affairs: 17

18 expenditure in BiH for the period The data sources used for the analyses are preliminary results of the national health accounts for BiH prepared in the PHR II Project. The main purpose of the analyses of the health financing and the health expenditure indicators is to provide information on general trends of health care expenditure in BiH and enables international comparisons, which warn us of areas in which BiH departs from other European countries. We use the analyses to point out possibilities offered by NHA as the base for health policies at a macro level. 2. SYSTEM OF HEALTH ACCOUNTS The methodology of the System of Health Accounts proposes an integrated system of the comprehensive and internationally comparable accounts and provides a framework of standard tables for reporting data on health care expenditure. Since 2000 the National Health Accounts (NHA) 16 were prepared based on the methodology described in the first version of the Manual System of Health Accounts 1.0 (hereinafter: SHA 1.0) from 2000 (OECD, 2000) 17, and in the low income countries also based on the Guide for producing NHA with specific applications for the low and middle income countries (WHO, WB, USAID, 2003). The new revised version of the SHA Manual (hereinafter: SHA 2011) was published in 2011 by the Eurostat, WHO and OECD (OECD, Eurostat, WHO, 2011). SHA methodology (old and revised version) made a clear difference between financial, institutional and functional aspects of the health care recommending a three dimensional system that provides answers to the three key questions: Where does the money come from? (financing agent/ financing schemes) Where the money is going? (health care provider) What services were provided and what goods were purchased? (health care functions) Basically, above listed questions, are given in the proposed International Classification for Health Accounts ICHA, which is divided into three basic classifications (review chapter 1.1. and tables attached hereto): 1. Classification of Health Care Functions (ICHA-HC) 2. Classification of Health Care Providers (ICHA-HP); 3. Classification of Health Care Financing Schemes (ICHA-HF). Combining the latter produces three basic tables (Attachment 1) that can be added to by other classification: the revenues of financing schemes, age groups of the population, group of diseases and etc. 18 The data given through the methodology of the health care accounts are 16National Health Accounts (NHA) represent health accounts of a country or a region (entity) done in accordance with the SHA methodology in the way that several statistical data describe expenditures of public and private sector in the health care system. 17A working version of the translated Manual SHA 1.0 from Republic of Serbia is available. 18SHA 2011 defines additional dimensions that allow making of additional indicators of the health care system: - Classification of Revenues of Health Care Financing Schemes (ICHA-FS); - Classification of Factors of Health Care Provision (ICHA-FP); 18

19 useful for evaluation and planning in health care, especially taking into consideration the fact that they are internationally comparable, and are also compatible with statistical classification used in the System of National Accounts 19 (SNA) thus also with the indicators from other areas of economy. Many countries have started the process of monitoring heath care financing and expenditure indicators according to the SHA methodology, but having in mind that introduction of this methodology and classification is very demanding and often takes a long time the countries are found at different phases of implementation. SHA is modular, so it is possible to start collecting data for the three basic classifications/tables and subsequently add and introduce other tables adjusting the dynamics and sequence of their introduction according to the capabilities and the needs of each country. Most of the EU and OECD Member states already report in accordance with three basic classifications (health care functions, providers and financing agents/schemes), which have been within the PHR II Project integrated also in the statistical system of BiH, and for the entity level (FBiH and RS) and BD. The classification of Revenues of Financing Schemens (ICHA-FS) is also being developed International Classification for Health Accounts (ICHA) The basic three classifications of System of Health Accounts encompass the following health care expenditure categories (to review in detail the table in attachment): Classification of health care functions (ICHA-HC) The basic classification encompass curative care, rehabilitation, long-term health care, ancillary services, medical goods dispensed to outpatients, preventive care, and governance of health care system and financing administration. Each of the categories is further classified to several subcategories: curative care including in-patient care, day care, outpatient curative care and home care. The same subcategories are applied to rehabilitation and long-term health care. Ancillary services include clinical laboratory, diagnostic imaging, patient transport and emergency rescue, and other ancillary service, while the medical goods dispensed to outpatients are classified to pharmaceuticals and other medical non-durables and therapeutic appliances and other devices. Preventive health care contains the category of information, education and counselling programes, immunisation programes, early disease detection programes, healty condition monitoring programs, epidemiological surveillance and risk disease control and preparing for disaster and emergency response programs. Some of the subcategories are also further classified: for example, outpatient curative care is divided on medical and diagnostic - Classification by health care beneficiary characteristics (age, gender, disease, social-economic characteristics or regions); - Classification of human resources in health care (using ISCO 2008); - Classification of health care goods and services. 19 System of national accounts (SNA) is used to calculate GDP by production, expenditure and income method. The calculation includes all activities within the economy of a country. 19

20 service, outpatient dental care, all other specialized health care and all other outpatient curative care. Classification of health care providers (ICHA-HP) Main classification includes hospitals, residential long-term care facilities, providers of outpatient health care, providers of ancillary services, retail sales and other providers of medical goods, providers of preventive care, providers of health care system administration and financing,, providers of rest of the economy and rest of the world (foreign companies providing health care). In the subcategories the hospitals include general, mental health and specialized hospitals; the residential long-term care facilities are divided to nursing facilities, mental health and substance abuse facilities, and other residential care facilities; while the outpatient health care are classified to medical practices, dental practices, offices of other health practitioners, outpatient health care centers and providers of home health care services. Providers of ancillary services include providers of patient transportation and emergency rescue, medical and diagnostic laboratories and other providers of ancillary services. Retail sales and other providers of medical goods include pharmacies, retail sellers and other suppliers of durable medical goods and all other miscellaneous sellers, while the providers of health care system administration and financing are classified to government health administration agencies, social health insurance and private health insurance administration agencies. Rest of the economy is divided to households as providers of home health care and all other industries as secondary providers of health care. Classification of health care financing schemes (ICHA-HF) The basic classification encompasses governmental schemes and compulsory contributory health financing schemes, voluntary health care payment schemes, household out-of-pocket payment and rest of the world financing schemes.. Within the governmental financing schemes, there is classification to central, entity, cantonal and local level, as well as to compulsory health care insurance. Voluntary health care includes voluntary health insurance, NPISHs financing and enterprises financing. Households out-of-pocket payment if divided on out-of-pocket excluding cost sharing and cost sharing with third party payers. 3. DEVELOPMENT OF THE NHA IN BIH The first pilot implementation of the National Health Accounts for BiH was conducted in the year As a result, the first NHA data and basic internationally comparable indicators on health expenditure for the period were published in the First Report on the NHA for BiH (Strengthening of Capacities of Public Health Institutes in BiH, 2008). After these initial steps towards the NHA implementation, the Sector for Health of the MoCA took the responsibility of coordinating further development and compilation of the NHA for BiH. The working group for the NHA on the level of BIH was officially established in 2008, and since then, every year MoCA has collected the NHA data on public expenditure from FBiH and RS and Brcko District and prepared estimations on private health expenditure by using the data from the System of National Accounts for BiH (BHAS, ). Thus, in the period , the MOCA compiled basic NHA results for BiH and reported them to WHO in the format of Mini NHA questionnaire of WHO. 20

21 In 2011, the MOCA for the first time reported NHA also to Eurostat by using the framework of Joint Eurostat/WHO/OECD Questionnaire. However, so far only two basic NHA tables (HFXHC and HFXHP) to the first digit level were reported and with still many departures from the SHA methodology. European Commission has, in the period December 2011-December 2013 and within the Public Health Reform II project, funded development of methodology and monitoring of health expenditure in BiH according to SHA 2011 methodology 20 that will become regulary statistical obligation in 2016 for all European countries. As of 2005, all European countries report the data to Eurostat based on gentlemen s agreement. Agency for statistics of BiH (BHAS), with support from PHR II Project, included the NHA for BiH reporting in the midterm plan of statistical surveys for period , and in May 2014 BHAS will, for the first time, send to Eurostat complete three basic tables of National Health Accounts for BiH for the period , in the proscribed form of Joint Questionnaire of Eurostat, OECD and WHO, using the SHA 2011 methodology. Ministry of Civil Affairs BiH will continue to report to WHO on main indicators of health expenditure in BiH in the form of WHO Mini Questionnaire. An important task in BiH was also the development and institutionalization of the NHA on the level of FBiH and RS and Brcko District where NHA were implemented following the bottom up approach and responsible institutions and regulations were officially defined ("Bottom up" approach). Within the PHR II Project, document Guidelines for development of NHA in BiH was prepared, and it clearly states the institutions included in the process of creation of NHA, environment and structure of management, human and financial resources, data collection procedures, timeframes for dissemination of data, as well as the sources of data for NHA per relevant finance sources. Key Actors Group of the Project adopted the document in July In the years to come, technical groups for NHA 21 will update this document and supplement it according to agreed alternations during the development of NHA. Annex 2 shows the data collection and dissemination schemes for national health accounts for FBiH, RS, BD and BiH, as agreed in the document adopted in Eurostat, OECD and WHO published a revised System of Health Accounts, 2011, methodology in December Technical groups for NHA were officially established in FbiH, RS, BD and BiH. Main tasks are collection of data and dissemination of data according to the BiH NHA Guidelines, as well as the analysis and monitoring of indicators within NHA 21

22 4. ANALYSIS OF HEALTH EXPENDITURE IN BOSNIA AND HERZEGOVINA IN THE PERIOD Purpose of analyses and source of the data Analysis of the health expenditure in BiH for the period refers to main internationally comparable indicators of health expenditure and financing that are important to get the basic picture of institutional characteristics of health care systems. The purpose of the analysis is to provide information on the general trends of health expenditure in BiH and to enable international comparisons that are primarily intended for identification of areas in which BiH departs from other European countries. We use the analysis also to point out the possibility offered by NHA indicators as the base for formulating health care policies at the macro level. The group of indicators showed in the analysis is based on the recommendations of the WHO, EC and OECD (OECD et al., 2011, pg. 327) on the way of designing health expenditure reports and selecting the main indicators based on the SHA. When selecting the indicators we tried to take into consideration also the present needs of health care policies in BiH. The first part of the analysis shows the basic indicators of the health expenditure in BiH (health expenditure as a share of GDP, health expenditure per capita) and indicators of health care financing (share of public and private expenditure and their structure). The second part of the analysis attempts to show some of the more detailed indicators of health expenditure by functions of health care (as per ICHA-HC classification for example how much is spent on inpatient and outpatient health care services, pharmaceuticals, preventive care, system administration). Due to short time series of available data the analysis is limited to the structural comparisons indicating the areas in which BiH relatively departs from other countries in terms of financing structures and health expenditure structures 22. The sources of data used for the analysis of health expenditure in BiH are the following: - The National Health Accounts for BiH: Internal tables of the Joint OECD, Eurostat and WHO Questionnaire for the period prepared within the PHR II Project in BiH (including the NHA tables at the lowest third level of ICHA classifications); preliminary results: November All results are based on collecting the data from the existing databases and the data that are processed and organized in the NHA tables using the SHA 2011 methodology. The Health Sector of the BiH Ministry of civil affairs has taken all data in this report from the preliminary NHA tables submitted by the PHR II Project. As from the next year, the Health Sector will receive the NHA tables for BiH from the Agency for statistics of BiH (BHAS) in accordance with the Guidelines for NHA development in BiH (2013) and the Protocol on exchange of the data between the institutions in BiH. 22 Longer time series (more than 5 years) will enable us to compare trends in health care financing structure in regard to the trends in other countries (for example, whether there is an increase of the share of public or private expenditures for pharmaceuticals' financing) and changes in the structure of expenditure for certain health care functions (for example, whether the expenditures for inpatient or outpatient care are increased in the structure, etc.). Usually in the longer time period we are also interested in following the real growth of health expenditure in relation to GDP growth and in comparing expenditure growth for certain health care functions. 23 Within the PHR II project the data on health care expenditure in FBiH, RS and BD for the period were prepared. NHA tables for BiH were prepared based on the NHA tables for FBiH, RS and BD (attached to the report). 22

23 The basis for the analysis is a cross- classification table of health expenditure by financing schemes and health care functions (HFXHC), which is a tool for analyzing all main indicators of health expenditure the most often used in the international comparisons. Other crossclassification NHA tables (HFXHP, HCXHP), which were prepared for reporting within the PHR II Project, have been showed in the Annex to the Report for 2011, but they are not analyzed for this report. The data sources for international comparisons are: - The World Health Organization: Database National Health Accounts data available in the WHO Mini Questionnaire - The World Health Organization Database: Health For All Database - OECD Health Data 2013 (OECD Stat) database - Eurostat database 4.2. Main indicators of health expenditure The total health expenditure in BiH for 2011 accounted for million BAM; whereof public expenditure represented 72% and the private expenditure 28% 24. The real growth of public expenditure of 2.5% and 2.7% (table 1) was observed in 2010 and 2011 and a fall of private expenditure growth, which decreased in 2010 for 4.9% and in 2011 for 1.1 % (Chart 2). The growth of public expenditure in the period mostly referred to increase of expenditure for medical goods and for specialized outpatient curative care and the decrease of private expenditure referred to decrease of households expenditure for the pharmaceuticals, which is mostly related with the increase of public funds for the prescribed medicines (see chapter 4.3). SHA 2011 ICHA- HF Table 1. Total, public and private health expenditure in BiH, In thousand BAM Share in THE, in % Nominal growth rate, in % 2010/ / 2010 Real growth rate, in % / / 2010 Total 2,420,640 2,465,697 2,568, ,9 4,1 0,3 1,6 Public HF.1 1,679,036 1,748,793 1,841, Private HF.2+ HF.3 741, , , Source of data: PHR II Project NHA tables for BiH 24 The amount of private expenditure includes direct out-of-pocket household payments for health care services, which includes cost sharing for prescribed medicines and for health care services, OOP payments for over-the-counter medicines, OOP payments at private health care providers, as well as informal payments in the hospitals, specialized outpatient care and at the primary level. 25 The analysis used implicit deflator of GDP and not the consumers price index (CPI) for conversion into real prices and calculation of real growth rates, as that follows the recommendation of international institutions (WHO, EU, OECD) concluding that health expenditures have high share in the non-market producers who don't determine price in the market, which is why the GDP deflator is more appropriate measure for price growth than the CPI (Agency for research of healthcare and quality, 2011; OECD 2010). 23

24 Chart 1. Total, public and private health expenditure in BiH, , in million public expenditure private expenditure total expenditures Source of data: PHR II Project NHA tables for BiH Chart 2. Real growth rate of total, public and private health expenditure in BiH, , in % 2,5 2,7 3,0 2,0 1,0 - -1,0-2,0-3,0-4,0-5,0 0, ,1-4,9 public expenditure private epxnediture total expenditure 1,6 Source of data: PHR II Project NHA tables for BiH The main indicators of health expenditure that are mostly used in the international comparisons are: 1) Total (public and private) health expenditure as a share of GDP, 2) Total health expenditure (THE) per capita in purchasing power parities. The purpose of these indicators is to reflect the total volume of the health expenditure in a country, which depends on various factors (EC & EPC 2010, pg ): demand side factors come mostly from the level of economic development of the county (measured by GDP per capita), population s expectations related to the health, the health status of the population in general; while on the supply side the most important factors are institutional characteristics of the health care system, as availability of public funds for health, the benefits basket, capacities of health care system (staff, beds, technology), price level, payments models used in contracts with 24

25 health care providers, gatekeeper systems (system of patient referral from the primary level to the higher levels of health care), administrative costs. The main indicators of health expenditure in BiH confirm high public and high private health expenditure in relation to GDP (table 2, chart 4), but on the other hand, due to low GDP per capita also health expenditure per capita are still very low (Chart 3). ICHA-HF HF.1 HF.2+ HF.3 Table 2. Main indicators of health expenditure in BiH in relation to GDP and per capita SHA 2011 Share in GDP, in % Per capita, in BAM Per capita, in USD PPP Total Public Private Source of data: PHR II Project NHA tables for BiH In 2011 the THE per capita in BiH accounted for 669 BAM, namely 895 USD PPP, which is only around 28% of the EU average (Chart 3). The total expenditure per capita in the neighboring countries is higher than in BiH, while up to 80% more from average in the EU was spent on health care in the most developed countries of EU. The public health expenditure per capita in BiH in 2011 was 480 BAM, namely 642 USD PPP, and amounts 25% of the EU average. The private expenditure in 2011 was 189 BAM, namely 253 USD PPP, which is also below the EU average (775 USD PPP). The share of THE in GDP in BiH was almost constant from 2009 to 2011, at the level of 10.0 % GDP, which is above the EU average (9.6%), and the highest among the countries of the similar level of economic development (Chart 3-5). The share of the public health expenditure in the GDP was 7,2% in 2011 (EU: 7,9%) and share of private expenditure was 2,8 % GDP (EU 2,7%; Serbia 3,9 %, Croatia 1,2%, Slovakia 3,2%, Slovenia 2,5%). Chart 3. Total health expenditure (THE) per capita in BiH and European countries, 2011, in PPP USD Source-WHO, Health for All database; for BiH: PHR II Project NHA tables for BiH 25

26 Chart 4. Total and public health expenditure as a share in GDP, BiH and EU countries, 2011 Source-WHO, Health for All database; for BiH: PHR II Project NHA tables for BiH The main reasons for high health expenditure in relation to GDP in BiH are the following: - Different from same other countries, which are at the same level of economic development, on the supply side in BiH there is a very well developed system of social health insurance with a long tradition and relatively high social insurance coverage. - Citizens expectations related to the health are very high (at the European level) due to, among other things, good availability of all information and high dissemination of the information through the media. - High rights to health care services are covered by compulsory health insurance. - Formal out-of-pocket payments are low and the exemptions from copayments for special groups of population are high. - Inadequate distribution of funds in health care (high share of expenditure for inpatient care, insufficient funds at the primary level and low investments made to prevention and public health). - On the demand side we have high share of older population and relatively long life expectancy at birth (according to an estimate in 2009: 76 years; EU in 2012: 83 years). The share of population over 65 years of age is high and such population has higher needs to use health care services. - The share of population with disabilities is very high (consequences of the war) and this population has high needs within long-term health care, which is systematically not satisfactory and it influences increase of expenditure for acute treatment. Private expenditure are high also due to the following reasons: - Per capita public health expenditure are still low due to low GDP and cannot satisfy high citizens expectations related to health and health care, that influences seeking health care services in the private sector. 26

27 - The offer by private health care providers in certain areas is very well developed (dental care, diagnostics, and specialized services) and provides quick availability of health care services and increased private expenditure. - The offer of non-prescription drugs and therapeutic aids is high (the network of pharmacies is fully developed). - Informal (illegal) payments to the doctors and nurses in the hospitals are very high. Chart 5. Economic performance of countries according to GDP per capita and public health expenditure as a share of GDP, 2011 Source-WHO, Health for All database; BiH: PHR II Project NHA tables for BiH The above given chart shows that the public health expenditure as a share of GDP (which is 7.2% in BiH) is the highest amongst the countries at the similar level of economic development. The reason of such a high percentage is found in the long tradition of the social health insurance system and its high health insurance coverage (therefore, the high share of public health expenditure is typical for all countries of former Yugoslavia, Chart 5). However, high share of public health expenditure in GDP can represent a problem at this level of economic development due to future fiscal sustainability of health care system. One can expect to have the share of public health expenditure in GDP increasing in the decades to come due to the growth in GDP per capita, as well as demographic and other factors, so that the health care will use even higher share of available economic resources. The health financing policies should take into consideration medium term and long term projections of public health care expenditure, which give an estimates for the EU countries that in the period from 2010 to 2060 at the EU average will increase at least 3 percentage points of GDP due to demographic and different nondemographic factors 26, but according to the risk scenario that takes into consideration that the influence of non-demographic factors to growth of expenditure will be even higher, the 26 Non-demographic factors that have huge influence on growth of health expenditure are: introduction of new (more expensive) technologies, institutional characteristics of health care system (i.e. increasing compulsory health insurance coverage), increase of the employment and wages in the health sector, Baumol effect to growth of relative prices (faster growth of prices in the health care than in other areas due to the more work intensive activities and whose productivity increases slower than in other economic activities) (European Economy, 2014). 27

28 expenditure could be even doubled (European Commission-EPC, 2012). These estimates of increasing public health expenditure in the GDP could be even higher for less developed EU countries, where the growth of potential GDP is expected to be higher. It stresses the need to increase efforts on slowing down the increase of the share of public health expenditure in GDP, especially by improving regulatory framework for increasing efficiency of financing and provision of health care services. The main recommendations of the European Commission to increase fiscal sustainability and efficiency of health care systems are the following (European Commission-EPC, 2013): - Providing sustainable financing of health care system; - Re-designing basic package of health care rights financed from the compulsory health insurance as to achieve cost-effective use of the health care services; increasing efficiency of inpatient care; - Improving access to primary health care and decreasing the need to use specialized and hospital care (introducing gatekeeper system), - Increasing efficiency in the use of medical goods (drugs, therapeutic aids) by a better regulatory approach; - Increasing focus of health promotion and disease prevention; - Improving data collection and monitoring; - Increasing efficiency of health care services provision by using the instrument of assessing the needs of using modern technologies in the health care (health technology assessment HTA). 28

29 Main health expenditure indicators Main results: - Total health expenditure in BiH for 2011 was million BAM; where of public expenditure represented 72%, and the private expenditure represented 28%. - In 2010 and 2011 a real growth of public expenditure was recorded on the average of 2.6% annually and a negative growth rate of private expenditure, which decreased in 2010 for 4.9% and in 2011 for 1.1%. The growth of public expenditure was the highest for specialized outpatient curative care services and pharmaceuticals, and decrease in private expenditure was caused mainly by lower out-of-pocket expenditure for pharmaceuticals, but also by generally lower household consumption due to economic crisis. - In the period the real growth rate of public health expenditure was higher than the real GDP growth rate, so that the share of the public health expenditure in GDP increased from 6.8% to 7.2% GDP (EU: 7.9%). - The reasons for so high level of health expenditure in BiH could be found in the long tradition of social health insurance and high health related population's expectations. - The public and private health expenditure in GDP (7.2%; 2.8%) is very high for the achieved level of the BiH's economic development, but on the other hand, due to low GDP per capita, the health expenditure per capita are still low (895 USD PPP) and therefore influence seeking the health care services in the private sector. - The high level of private health expenditure in GDP (2.8% in GDP) are caused by relatively low public health expenditure per capita, that cannot satisfy high health related expectations of the population (high rate of educated population, availability of information, close relation with the European countries), which influences seeking the health care services in the private sector. - Recommendations: - The share of public health expenditure in the GDP is very high for the achieved level of country's economic development it is necessary to undertake measures to limit the growth rate of expenditure from compulsory health insurance so that in the medium term period the expenditure of the compulsory health insurance on average do not increase faster than GDP (it means that share of public health expenditure in GDP in the medium term would not increase). - Social health insurance funds and health care institutions should work with in advance limited budget, without any deficit and without debts, which means that they would work in the framework of a balanced annual financial plan. If the incomes in the compulsory health insurance system are low due to the crises and cannot cover the expenditure, measures should be taken as to increase incomes (to expand the base of contribution payments to all incomes and to align contribution rates to all population groups), but at the same time to increase efficiency in provision of the services. 29

30 4.3. Financing of health care According to NHA data for BiH in the period , health expenditure as a share in THE, have increased from 69,4 to 71,7 % (EU average: 76%), and private expenditure have decreased from 30,6% to 28,3%. Detailed structure of health expenditure according to financing schemes are laid out in Chart 7 and Table 3. Chart 6. Structure of health expenditure - public and private expenditure as a share in THE in 2011, BiH and other European countries Source-WHO, Health for All database; for BiH: PHR II Project NHA tables for BiH Chart 7. Structure of total health expenditure according to financing schemes in BiH, 2011 Source: - PHR II Project NHA tables for BiH 30

31 Biggest share of total health expenditure in BiH is financed by social health insurance schemes (65%). That includes FbiH Health Insurance and Reinsurance Fund, 10 cantonal health insurance funds, Health Insurance Fund RS and Health Insurance Fund BD. Central BiH budget participates with only 0.02%, whereas entity and cantonal governments' budgets cover total of 6.3% health expenditure, and municipal budgets participate with only 0.2%. Within private health expenditure (28.3%), comes 27.4% from direct out-of-pocket payments (including the formally paid participation, out-of-pocket payments for medicines, payments in private health institutions and estimate of informal payments); and out of voluntary health care payment schemes 0,9% (that amount includes health investments of private companies with 0.7% and voluntary health insurance with only 0.2%). Table 3. Total health expenditures by financing schemes, BiH SHA 2011 In thousand BAM Share in THE (%) In thousand BAM Share in THE (%) In thousand BAM Share in THE (%) HF.1 HF HF HF HF HF.1.2 HF HF.2+HF.3 HF. 2. HF Total health expenditure (THE) 2,420, ,465, ,568, Public HE Central BiH budget (MoCA) Entity budgets Cantonal budgets Compulsory health insurance schemes Local governments 1,679, ,748, ,841, , , , , , , ,525, ,582, ,669, , Private HE. 741, , , Voluntary payment schemes 62, , , Household OOP payment Source: PHR II Project NHA for BiH, , , , Note: Central BiH Budget includes only expenditures of Sector for Health in the Ministry of Civil Affairs; entity budgets include health expenditures of the Ministry of Health and Social Welfare of the Republic of Srpska, Ministry of Health of Federation of BiH and Department for Health and Other Services of Brčko District 31

32 4.3.1 Public expenditure Public health expenditure (HF.1) in BiH cover a bit more of three-quarter of the THE (71.7% in 2011), which is 7.2% of the GDP. The reasons for relatively high share of public health expenditure in GDP was explained in the previous chapter, and we also warned of high share of public health expenditure in the GDP internationally compared, but on the other hand we also talked about low public health expenditure per capita. In this chapter we will focus on the structure of public health expenditure according to the sources of financing. The compulsory health insurance funds do participate in the public health expenditure structure with more than 90% (namely in the structure of the THE with 65% - charts 7 and 8). Expenditure of the budgets of all levels of authority (HF.1.1.1) in BiH cover only slightly more than 9% of all public health expenditure (namely 6% of the total expenditure). The budget funds are mostly intended for financing capital investments in the public health care institutions at the secondary and tertiary level and some programs in the area of public health and prevention. The local budget funds finance certain investments at the primary level and some hygieneepidemiological and social medical activities. Chart 8. Share and structure of public expenditure in total health expenditures, 2011 Source: Eurostat database; for BiH: PHR II Project NHA tables for BiH The international comparison of the public health expenditure financing structure mainly reflects the differences in the systems of public financing of the health care (chart 8). The system in which the basic health rights are covered directly from the budget, namely from the tax (Beveridge s model of the national health care service), is used in Great Britain, Ireland, Iceland, Norway, Sweden, Denmark, Finland, Italy, Spain, Portugal, Greece and Cyprus. In other European countries the health care rights are covered mainly (above 50%) from the compulsory social health insurance (Bismarck s model of social health insurance), which are usually supplemented by fiscal and budget funds (Paris et al., 2010 pp. 8). Among the countries using Bismarck s model of social health insurance, BiH stands out with very low share of the budget funds entity, cantonal, municipal (in % of public 32

33 expenditure and 6% of total health spending). Most countries with similar type of social health insurance, more than BiH, supplement public health care financing care by allocation of funds from taxes and budgets of state and local authorities (Germany, Austria, Luxembourg, Belgium, and Estonia). Similar to BiH the budget funds are used to finance investments, prevention, health education, research and development, and very often also emergency departments. Most of the budgets also cover contribution for the compulsory health insurance for unemployed, socially deprived or certain significantly endangered groups of citizens (prisoners, asylum seekers, refugees) 27. Such a low share of health care financing from the budget increases sensibility of the health care system to a crisis in situation when it comes to a decrease of working individuals, who pay the contributions for the compulsory health insurance. The social health insurance system with low additional budget financing is also sensitive to decrease of incomes due to ageing of the population (and decrease in the participation rate of working population in the future) and does not ensure long term fiscal sustainability of the public health care system. Another problem in BiH are high contribution rates of the working population for the health insurance, which could be lowered in the future if the income base for health insurance would be expanded (see recommendations at the end of the chapter). Challenges of the financial crisis to the public health care systems: The measures for stabilization and fiscal sustainability of public health care systems have been undertaken in all EU states at the time of crisis. One of the most important characteristics of reforms, that is the measures undertaken during crisis, is that countries are turning more to so-called mixed system of financing health care, which means that the systems based on social health insurance (as in BiH) are being more supplemented by financing from the taxes, namely from the budget. The problem of crisis years in which unemployment increased and the wages decreased is that, due to lower contributions, there was a decrease in the revenues of the health insurance funds, which could not meet the expenditure anymore, that is, they could not finance current health care spending. Improving the sustainability of financing health care system as one of the main tasks of all European countries can be achieved in several ways as recommended by the European Commission (2013). All of the ways described further down in the text are also relevant for the health care systems in BiH. The key aspect is to improve flexibility, predictability and robustness of the social health insurance system in case of an economic crisis. It can be achieved by measures for expanding incomes base for social and health insurances as: 1) Expanding the base for calculation of contributions in order to be paid by all incomes of policy holders (for example: author fee, managing awards, rents, dividends), as it is already introduced in RS; 2) To correct contribution rates in the way of having all population groups paying contributions in solidarity (for example increasing contribution rate for self-employed, farmers, etc.). Besides expanding the incomes base for contributions and increasing solidarity in contribution rates, strengthening transfers from the state budget is a measure that had been 27 In case when expenditure from the budget represent transfer to the health insurance fund, that amount is included in the national health accounts as the revenue of the health insurance fund and expenditure of the health insurance fund, and not as the budget spending for the health care (it means that the amount included two times). 33

34 undertaken at time of crisis in Germany, Hungary and Lithuania, but in some other countries some taxes were set aside from the budget and now are used for health care (France and Italy); also a measure can be increasing the share of the excise duty on spirits and tobacco; or introducing excise duties on sweet drink. /SIN TAXES/ On the other hand in many EU member states (similar to BiH) some saving measures were undertaken during the crisis in order to more easily align expenditure with lowered revenues: te growth of wages in health care was frozen or the working hours in were increased, the rights to pension were lowered; the prices of health care services paid to the service providers were lowered (in the prices of health care services have the highest share the wages and material costs). However, empirical studies and historical experience suggest that reduction of wages is not feasible in the medium or long term, since the wage policy in the health care sector has to remain competitive as to attract young, educated professionals. In the countries where the habit of informal payments to the health care workers is common, the reduction of the wages can have additional negative effect to the increase of corruption. The European Commission notices that the measures that have been implemented in the EU member states during the crisis were mostly directed towards improving fiscal sustainability of public health expenditure. Nevertheless, these measures do not affect improving efficiency of the health care system. For example, they do not influence the changes in the structure of spent public funds (increasing financing of outpatient care against inpatient care, disease prevention and health promotion). The EC concludes that enough space remains for further reforms and improvement of the health care system s efficiency (and in that way to slow down the growth of public health expenditure in relation to GDP). Having in mind the future fiscal challenges, it is necessary to expand reform efforts towards measures that improve efficiency and effectiveness of the health care system. 34

35 Public health expenditure Main results: - The share of public health expenditure in the total health spending is relatively high (BiH 72%; EU: 76%) mostly due to a long tradition of the social health insurance (high share of public expenditure is for the same reason typical for all countries of former Yugoslavia). - The compulsory health insurance participate in the public spending structure with more than 90% (in the total health expenditure structure with 65%) and the budget with 9% (6% of the total spending). It means that the share of the budget (tax) financing is very low even when we compare BiH with other countries that have similar system of the social health insurance. In the developed countries the social health insurance systems are moving towards mixed health care systems (a mix between the Beveredge's and Bismarck's health care system). - The structure of financing public health care system in a long term in BiH is not financially sustainable due to the fact that because of ageing the number of employed persons paying the contributions will decrease; besides, there is also a problem of system's sustainability in case of the economic crisis namely in the case of increased unemployment rates. Recommendations: Stabilization of the compulsory health insurance system by higher revenues (broadening the contirubution rate and increasing it for some groups of population, sin taxes), but in a way not to have the public health spending increasing faster than the GDP growth rate. Medium term and long term gradual introduction of a mixed system of health care financing stabilization of the social health insurance system by boosting up the transfers from the budget and by increasing direct budget financing of the health care. The contribution rates for compulsory health insurance in BiH are very high for employed persons (in FBiH: 16,5 %; RS: 12 %). They cannot be increased anymore, and actually should be lowered, but first the base for paying contibutions to compulsory health insurance should be expanded in a way to broaden the base for contribution payment to all incomes (i.e. fees, awards, dividends, rents) and to have the contribution rates aligned for all insurance categories (i.e. self-employed, farmers). Such a measure would increase solidarity in contribution payment and would in general lower labor force costs and it would have good effect to increase of economic competitiveness in general Using measures to increase efficiency of health care system and to increase available public funds for the health care: o redefining the scope of benefits covered so as to incentivise the cost-effective use of treatments; o redesigning the cost-sharing for pharmaceuticals in a way to have higher use of the costeffective medical goods, as generic medicines; o reconsidering the cost-sharing for health care services in a way to incentivese the costeffective use medical services (to have the patients not using some of the service that do not have an important effect on treatment for example patients' transport, spa treatments), but at the same to introduce protection of the vulnerable groups of the population. Auditing the prices of health services and the prices of the medical non-durables in the hospitals. To decrease hospitals' deficit by strict control of the budgets, which means that the hospitals can get the loans only if approved by the competent ministry along with increasing responsibility of the management at the hospitals. To increase efficiency at the hospitals by decreasing the volume of corruption of the staff at the hospitals (institutions competent to fight against corruption should deal with the corruption in the health care, especially regarding prices and the procedure of procuring medical goods and materials for the hospitals). Introducing fiscal measures as for example increasing so called sin taxes : taxes on tobacco, spirits and sweet drinks. These measures 35 are cost-effective in the sense of disease prevention and do have a positive effect on lowering health related spending.

36 Private health expenditure The share of private health expenditure (HF.2+HF.3) in the total spending for health in 2011 was 28.3% (2009: 30.6 %) (See tables 1-3). In the period the private health expenditure in BiH decreased totally for -6.0 % (2010: - 4.9, 2011: -1.1) (Chart 2). The reason for this is mostly decrease in the out-of-pocket payments for pharmaceuticals (introduction of new medicines to the positive lists covered by compulsory health insurance), but also in general decrease of total household consumption due to the economic crisis. In the structure of private expenditure the share of the direct household out-of-pocket expenditure is 96.8%, share of voluntary health insurance only 0.8% and share of the companies 2.4%. However, formal and informal payments 5 are included into the direct household out-ofpocket expenditure. The formal payments are: co-payments in the public health care institutions and cost-sharing for medicines, other direct payments made to private health care workers (dentists, specialized services, diagnostics, glasses, etc.) and payments for the non-prescription drugs and other therapeutic aids. Informal payments 5 are the highest in hospital care. Chart 9. Share of private health expenditure in total health expenditure, BiH and other countries, 2011 Source-WHO, Health for All database; for BiH: PHR II Project NHA tables for BiH When making an international comparison the share of private health expenditure in BiH (28%) is a bit higher from the EU 27 average (24%), but it is relatively smaller when compared to the most of the less developed countries, for example Albania, Moldova, Bulgaria, Latvia (see chart 9), namely compared to the countries at the similar level of development. Relatively high public spending is the main reason why the share of the private expenditure in BiH is not so high in the structure of the total health spending. Besides the indicators of the share of all private health expenditure in the total health spending (chart 9) the indicator of households out-of-pocket for spending as a share in total household consumption (including food, accommodation, transport, etc) has recently been used 36

37 as one of most important internationally comparable indicators of financial accessibility of health care services. The out-of-pocket health spending could be a catastrophic financial burden for the poorest households so that they delay the treatment. Inequalities in the access to the health care services are generally higher in the countries with higher out-of-pocket payments (Buzeti et al., 2011, pp. 63). That share in BiH in 2011 was 3.9%, which is above the average of the OECD states (see chart 10). Chart 10. Share of out-of-pocket health expenditure in total final household consumption in %, BiH 2011; other countries 2009 Source: Eurostat database; WHO -Health for All database; Note: average for 29 countries OECD that we have data for. For BiH: PHR II Project NHA tables for BiH The coverage of the population with private health insurances could also have important influence on the level of direct out-of-pocket spending as in some countries could cover high share of the population. For example, complementary private health insurance can be included in financing the same health care services and medicines as the compulsory health insurance and in that way it takes over part of the public financing of the health care (France, Canada, Slovenia), or for example in the Netherlands, they take over supplementary health insurance that pays for the great part of the health care services, but are obligatory for the citizens, or in Germany where the great part of the population with high incomes is included only in the private health insurances and do not pay the contributions to the public health care system. Nevertheless, the problem of private health insurances is that they increase the costs of health care system administration, but on the other side, they could have a positive effect on lowering the burden of direct out-of-pocket spending and could add to better financial accessibility of the health care services and medicines. 37

38 Chart 11. Structure of private health expenditures by health care functions (HC) in BiH, 2011 Source: PHR II Project NHA tables for BiH The analysis of the structure of total private health expenditure in Chart 11 shows that the highest share goes to the medicines and therapeutic aids 55.7 % (including 47% for medicines and 8.7% for therapeutic aids) followed by outpatient care 21.4%, inpatient care 18.3% (in inpatient care the high part of the private expenditure refers to informal payments 5 to the staff in the hospitals) and ancillary services (diagnostics and laboratory) with 4.7%. Chart 12. Structure of expenditure for health care functions by financing sources in BiH, 2011 Source: PHR II Project NHA tables for BiH Chart 12 shows how certain health care functions are financed: the share of private expenditure in the total expenditure for inpatient care is 15 % (EU 28 : 8 %), for the general outpatient curative 28 For the EU the average included 22 EU member states for which the data in Eurostat were available. The data for the year 2009 was taken from Zver, E. (2012). 38

39 care 4% (EU: 18 %), for dental outpatient care 65% (EU: 58 %), for specialised outpatient care 21% (EU: 18 %) and for medical goods (medicines and therapeutic aids) spent outside hospital 58 % (EU: 49 %) (See also chart 18). Preventive health care is mostly financed from the public sources, as well as the governance and health care system administration. It can be seen that the share of private expenditure in the structure of financing certain functions in BiH are above the EU average for the inpatient care (because of high informal payments 5 ), for dental outpatient care (most of the population uses the services of the private dentists; chart 13) and for the medical goods (including formal cost-sharing and high payments for over-the-counter drugs). However, for the general health care the share of private expenditure is lower that on EU average due to low cost-sharing and smaller informal payments at the primary level of the health care. In the expenditure structure for certain health care services and medicines (chart 12), the share of the private expenditure will mostly depend on the basic benefits rights package and formal copayments. Copayments to the health care services and medical goods, which are formally paid out-of-pocket, are defined by the laws, however it has to be mentioned that the legally set formal payments do not reflect the real volume of the out-of-pocket health expenditure for the certain functions as are reflected in the data of the national health accounts. In most countries of the Eastern Europe, as well as in BiH, despite the fact that some services are covered 100%, there is still significant private informal spending, because according to the SHA methodology, illegal payments to the medical staff are included into the total health spending. Such informal payments 5 in BiH are really high when it comes to inpatient care (in the data such payments are included with estimates according to the prescribed methodology). Also in some areas, for example dental care and specialized outpatient services, the share of the private spending can be really high due to the high supply given by the private medical practitioners (chart 13). Chart 13. Share of private health expenditures within dental outpatient care services, BiH 2011; other countries 2009 Source: -WHO, Health for All database; for BiH: PHR II Project NHA tables for BiH 39

40 Private health expenditure Main results: - The share of private health expenditure in the total health spending in 2011 was 28.3% (2.8% BDP). This share is higher than EU average (24 %), but it is not high compared to other less developed countries that mainly have lower public health expenditure. - In the period private health expenditure decreased for 6.0%. Mostly due to the fact that spending on pharmaceuticals decreased (new pharmaceuticals were included in positive lists), ), but also due to general decrease of total household consumption due to the economic crisis. - In the structure of private health expenditure, the share of direct household out-of-pocket spending is 96.8%, the share of the voluntary health insurance only 0.8% and the share of private companies 2.4%. - Both formal and informal payments 5 are included into the direct household out-of-pocket expenditure. The formal payments are: formal copayments in the public health care institutions and copayments for medicines, other direct payments made to private health care practitioners (dentists, specialized services, diagnostics, glasses, etc.) and payments for the over-the-counter drugs and other therapeutic aids. Informal payments 5 are the highest for inpatient care. - In the structure of private health expenditure the highest share goes on medicines and therapeutic aids (58 %), followed by outpatient and inpatient care (in the inpatient care the highest share refers to informal payments 5 to the medical staff at hospitals). - the share of private expenditure in the structure of financing certain health care functions in BiH are above the EU average for inpatient care (because of high informal payments 5 ), for dental outpatient care (most of the population uses the services of the private dentists; chart 13) and for medical goods (including formal cost-sharing and high payments for overthe-counter drugs Recommendations: - To be able to decrease out-of-pocket payments on health care in BiH it is primarily necessary to increase efficiency of invested public sources, which do not meet high expectations of the citizens related to their health and to health care services. - Caution is needed regarding lowering doctors' wages in the public sectors, since the wages need to be satisfactory (in the most of the developed OECD countries the wages for medical doctors are higher from the average wage of the persons with the tertiary education level). The empirical studies and the historic experience suggest that lowering wages of health care professionals is not viable in the medium and long term, because the wage policy in the health sector has to remain competitive as to attract young, educated professionals. - It is necessary to undertake measures to reduce informal payments to health professionals in the hospitals (control of prices in the hospitals, surveillance, and cooperation of the hospital management with the institutions competent for the fight against corruption). - Supporting development of voluntary health insurances, which now in BiH have very limited space for development. Development of private health insurances could reduce the burden of direct out-of-pocket spending. 40

41 4.4. Health expenditure by functions According to the SHA methodology health expenditure are classified by functions (HC) and by service providers (HP). Recording health expenditure by functions is important for international comparison of health expenditure, and ensures that the data are independent from institutional characteristics of the system (i.e. the same category encompasses specialized outpatient services done within the hospital, health centers or private offices). OECD (2010D, pp. 3) gives the reasons of differences between the countries in the structure of health expenditure by functions: - differences in the volume of provided services (measured for example by number of visits to the practitioners, use of the acute hospital beds, number of hospital discharges or number of diagnostic procedures); - Differences in the intensity of service provision (higher average stay in the hospital, difference in the number of medical staff per capita/per hospital bed); - Differences in the prices of services (relatively higher wages of medical staff). The states significantly differ about expenditure structure by functions and types of care (inpatient, day care, outpatient and home care) because of difference in the capacity of each level of health care, financing and medical practice. Structural changes in the health expenditure reflect introduction of new medical technologies and new pharmaceuticals, different financing mechanisms for health care service providers and the search after more efficient use of resources in the health care (Health at a glance, 2011) Capital formation In the THE, the share of the gross fixed capital formation in most of the countries is usually around 6-8%, and remaining 95% represent current health expenditure, which are in the next chapter analyzed by functions of the health care. It should be noted that the indicators of health expenditure by function are usually expressed as a share of current health expenditure 29. The problem of investments is that the amounts are volatile from year to year, which can have huge effect on the indicator of THE (and at the same time on all indicators that use the amount of the THE in their denominator). The table 4 shows the amounts of the THE in BiH and disaggregation to investments and current expenditure in the period In these years, the investments reduced from 168 to 152 million, which amounts around 13% in real terms. Therefore the investments had lowered in the structure of THE from 6.9% in 2009 to 5.9% in 2011 (table 4). Due to the financial crisis in these years, other European countries had also reduced their health care investments. 29 In SHA 1.0 and SHA 2011 the term Total Health Expenditure and Total Current Health Expenditure differ. Total health expenditure is defined as a sum of total current health expenditures and capital investments. 41

42 Table 4. Total current health expenditure and gross fixed capital formation in health care in BiH, In million BAM Structure, in % SHA Total health expenditure (HC.1- HC.7 plus HK.1.) 2, , , Current health expenditure (HC.1-HC.7) 2, , , Gross fixed capital formation in health care Source: PHR II Project NHA tables for BiH Out of the total gross fixed capital investments in health care in BiH the investments from entities governments and cantonal governments represent around 82-85%, from social health insurance funds 2-3 %, less than 1% represent investments from the local budgets and investments from private companies 11-13%. In chart 14 we see the structure of THE by entities - Federation of BiH and Republic of Srpska. Chart 14. Structure of total health expenditure, Federation of BiH and Republic of Srpska, 2011 Source: PHR II Project, NHA tables for FBiH and RS 42

43 Current health expenditure Having in mind the breakdown of current health expenditure (without investments) in BiH by functions in % referred to the curative and rehabilitative care (HC.1+HC.2), whereof inpatient care, together with day care, represented almost 38% (see picture 15), outpatient care together with home care and ancillary services 29%, long term health care services (HC.3) only 0.8%, 28% was spent on medical goods dispensed to outpatients (HC.5), 1.5% was given to preventive care (HC.6), while 2.8% was spent on governance of health system financing and administration (HC.7) (table 5). In the period in the structure of current health expenditure the share spent on outpatient curative care increased (from 23% to 25%) and the share spent on inpatient care decreased (table 5), which can be noted as a positive trend. It is also positive that the expenditure on medical goods also drastically decreased in the structure of private expenditure (from 59% to 55%). On the other hand, we can note as negative decrease of share of public funds spent on preventive care (from 2.2% to 1.8%) and the increase of public funds for governance and health system administration (from 3.8% to 3.9%). In the international comparison of the structure of current health expenditure by function for BiH the following can be observed (see Chart 15): - In the most of the EU countries, the share of the expenditure on outpatient care is higher than share of the expenditure for inpatient care, while in BiH the share of expenditure for inpatient care (38%) is significantly higher than expenditure for outpatient care (29%). - The share of expenditure for long-term health care in BiH (1%) is very low and it is far beyond the EU average (10%). Untimely long-term health care of elderly and chronically ill patients is reflected in the higher expenditure on acute curative care, which is much more expensive. - The share of expenditure on medical goods (pharmaceuticals and therapeutic devices) (28%) is above the average (EU 23%), but it is not high when compared with some other countries on the same level of development. Generally, in less developed countries higher share of THE is spent on pharmaceuticals for which the prices are almost at the European level, and smaller share is spent on health care services for which the prices are relatively low due to lower wages and so lower labor force price (see chapter 4.5). - The share of expenditure for preventive care and for administration costs of health care system and health insurance (together 4%) is beyond average (EU 6%), however the share spent on preventive care is really low (1.3%, see chapter 4.6), and the share spent on administration of health care system and health insurance is at the level of the EU (2.9%, see chapter 4.7). 43

44 Table 5. Structure of current, public and private health expenditure in BiH by health care functions, in % Current health expenditure, in % Public current health expenditure., in % Private current health expenditure, in % Health care functions (ICHA-HC) Curative and rehabilitative care (HC.1+HC.2) Inpatient curative and rehabilitative care (HC HC.2.1) Day curative and rehabilitative care (HC.1.2 +HC.2.2) Outpatient curative and rehabilitative care (HC HC.2.3) Home-based curative and rehabilitative care (HC.1.4+HC.2.4) Long-term care (health) (HC.3) Ancillary services (non specified by function) (HC.4) Medical goods (non specified by function) (HC.5) Pharmaceuticals and other medical non-durable goods (HC.5.1.) Therapeutic appliances and other medical durable goods (HC.5.2.) Preventive care and public health (HC.6) Governance and health system and financing administration (HC.7) CURRENT HEALTH EXPENDITURE (HC.1-HC.7) Source: PHR II Project NHA tables for BiH 44

45 Chart 15. Structure of current health expenditure by health care function in 2011, in %, BiH and other countries Source- EUROSTAT Health at glance 2012; for BiH: Tables NHA for BiH; Note: the hospital treatment data includes rehabilitation and daily care; outpatient treatment data includes home treatment and ancillary services (laboratory, out-patient patients' diagnostics) Chart 16. Structure of current health expenditure by health care functions-fbih, RS, BiH, 2011, in % Source: PHR II Project NHA tables for BiH, FBiH and RS 45

46 Chart 16 shows differences in the structures of expenditure by function between the entities. In FBiH higher share is spent on inpatient care, but it should be noted that the reason for this could be also some lack of data on inpatient care. If we calculate together inpatient and daily care the share is almost the same in FBiH and RS (37-38%). Also the share of expenditure on outpatient care by entities is almost the same (26%). In the structure a bit more is spent in FBiH on medical goods (29%) than in RS (26%), but this is mainly because the fact that more in RS more is spend on long-term health care (the data for FBiH for long-term care are missing and the amount would probably be higher), the same for the governance of the health care system and health insurance (RS: 4.1%; FBiH: 2.3%). According to the international recommendations the first area to which the measures to increase efficiency of health expenditure must be directed is the inpatient health care. The problem in BiH is similar to the problem in many EU member states where the health care systems tend to focus more on hospital care and thus making more costs. The data on high share of expenditure on inpatient care warns us that even though health policy often discusses that the aim is to have the health care system directed from the inpatient oriented system to outpatient service provision at the lower levels of health care, as the services of primary health care, that did not happen in the reality. For BiH that is also confirmed by other indicators of hospital care efficiency; for example by high average duration of the stay in the hospital (8.0 days)second area for increasing efficiency of health care is outpatient health care. The states with more developed outpatient care are more successful in improving health related outcomes and in decreasing health expenditure. Higher costs at the higher levels of the health care can be avoided by strengthening primary health care. To increase the use of primary health care measures such as sufficient number and good geographic distribution of trained practitioners of primary health care and nurses has to be implemented. Besides that an efficient system of gatekeepers has to be introduced so that patient would not seek more expensive consultations by specialists, avoiding also additional costs through unnecessary consultations and by no IT system that would follow the patients. 46

47 Expenditure by health care functions Main results: - In the period the capital investments in the BiH health care system were reduced from 168 to 152 million, which amounts around 13% in real terms. Therefore, in the structure of total health expenditure the investments were reduced from 6.9% in 2009 to 5.9% in In the period in the structure of expenditure by functions the share spent on outpatient care increased (from 23% to 25%) and share spent on inpatient care decreased (table 5 and 6). This can be characterized as positive. It is also positive that the expenditures on medical goods drastically reduced in the structure of private expenditure (from 59% to 55%). On the other hand, we can note as negative reduction of the share of public expenditure spent on preventive care (from 2.2% to 1.8%) and the increase of public funds for the governance of health care system and health insurance (from 3.8% to 3.9%). - In most EU countries, the share of expenditure on outpatient care is higher from the share for inpatient care, while in BiH the share on inpatient care (38%) is significantly higher than the expenditure on outpatient care (29%). - The share on long-term health care in BiH (1%) is very low and far beyond the EU average (10%). Untimely long-term health care for elderly and chronically ill patients is reflected in the higher expenditure on acute care, which is much more expensive. Recommendations: - It is necessary to continue the trend of faster growth of public expenditure for outpatient health care in regard to inpatient care. Relatively high expenditure on inpatient care services in BiH confirms that the public funds are spent inefficiently. The health care system should be more directed towards outpatient services (primary level and outpatient specialized curative care). - DRG payment system for services of hospital health care in whole BiH has to be introduced as soon as possible in order to achieve more efficient payments of health care services. - To increase the use of primary health care measures such as sufficient number and good geographic distribution of trained practitioners of primary health care and nurses must be implemented. - An efficient system of gatekeepers has to be introduced so that patient would not seek more expensive consultations with specialists and doubling medical diagnostics (to establish doctor surveillance over referral of the patients to the higher level) - Efficient system of health care services coordination has to be introduced between the different levels of health care. - IT system enabling monitoring the patients has to be introduced. 47

48 4.5 Medical goods pharmaceuticals and therapeutic appliances The category HC.5 includes medical goods for outpatients, namely prescribed and over-the counter pharmaceuticals and therapeutic appliances that are issued in pharmacies or some other forms of retail sale (for detailed information see OECD 2000, pp ; OECD et al, pp ). During % of current health expenditure in BiH were allocated for the medical goods (EU: 23%), which is above the EU average, but low when compared to other lower developed European countries (chart 15). From Table 6 in Chapter could be found that the share of the medical goods in the structure of public health expenditure amounts 16.7%, while in the structure of private expenditure the share amounts 55.2%. The total expenditure on medical goods per capita was in USD PPP, namely 176 BAM, which is way beyond developed OECD countries (438 USD PPP), but does not deviate that much from i.e. Poland (319 USD PPP) and Estonia (272 USD PPP). Chart 17 shows the structure of the total expenditure on medical goods in BiH - 87% was spent on pharmaceuticals, and 13% on therapeutic aids. Chart 18 in more detail shows that the share of expenditure on prescribed medicines was around 41% and for over-the-counter medicines 42%. Chart 17. Structure of expenditure for medical goods, in %, BiH, 2011 Source: - PHR II Project NHA tables for BiH 48

49 Chart 18. Structure of expenditure for medical goods (more detailed), BiH, 2011 Source: PHR II Project NHA tables for BiH Table 6. Expenditure for medical goods (HC5) In thousand BAM Share in total expenditure for medical goods, in % Nominal growth rates, in % Real growth rates, in % / 2011 / 2010 / 2011 / HC 5 Total 653, , , Public 249, , , Private 404, , , Source: PHR II Project NHA tables for BiH In the years the public expenditure on medical goods (pharmaceuticals and therapeutic aids) have nominally increased for 9.2% and in real terms for 6.5%. The main reason for the increase of public expenditure was the enlargement of the list of drugs that are covered from the compulsory health insurance and the introduction of new, more expensive drugs on the 49

50 lists, which influenced the reduction in private spending on medical goods for 7.2% (-5,3 in 2010 and -1,8 in 2011). In the structure of financing medical goods, the private expenditure decreased from 62% in 2009 to 58% in 2011 (see table 6). The decrease of private out-of-pocket spending on medical goods, especially on over-the counter drugs, can be partially explained also by relatively low economic growth namely low growth of the overall final household consumption. In general, the demand for pharmaceuticals in all countries is constantly growing in the last few decades, mostly due to appearance of new drugs, as well as due to the population ageing and better information flow. In order to achieve more moderate growth of public funds for the health care it is necessary to introduce different measures to mitigate the growth of the medical goods prices: regulating prices of the pharmaceuticals by classifications on the positive and negative lists, introducing the system of mutually replaceable pharmaceuticals with the highest acknowledge price, and introduction of the monitoring system in drugs prescription. On the other hand it should be noted that in recent years in all European countries the growth in the use of pharmaceuticals is driven by the introduction of expensive biopharmaceuticals, so that the relatively high growth rate of public expenditure on pharmaceuticals could also reflect faster introduction of new biopharmaceuticals, which are now available to the citizens. Nevertheless, their increased availability means more savings made in the health care service in the forthcoming period (OECD, 2010a, pp. 110). The pharmaceutical market in BIH is well regulated. Different policies apply on prices, marketing, as well as on special distributors, medical doctors and patients. Health policy and pharmaceutical market creators are getting more aware of the fact that by regulating pharmaceutical market one can achieve higher efficiency of funds spent on health without jeopardizing health care quality. However, we can note that the public expenditure in BiH are still not sufficiently directed to introduction of new technologies, pharmaceuticals and medical goods. The reason for that is in the lack of transparent and systematically introduced new treatments and pharmaceuticals. This should come from obvious effects and influence of new technologies and pharmaceuticals to the health care outcomes and treatments by using health technology assessment -HTA. Chart 19 shows the structure of financing medical goods in BiH and in the European countries. In BiH the share of private expenditure is 58%. This amount, internationally compared with the European countries, is rather high (for the countries at the similar level of economic development we do not have this data). 50

51 Chart 19. Share of public and private expenditures in total expenditures for medical goods, 2011, in % Source: EUROSTAT database, for BiH: PHR II Project NHA tables for BiH Chart 20. Structure of expenditures for medical goods by financing sources in FbiH and RS, , in % Source: NHA tables for FBiH and RS 51

52 Total pharmaceutical expenditure inpatient and outpatient According to the new SHA 2011 methodology, the total pharmaceutical expenditure is reported as an additional memorandum category, including inpatient and outpatient spending on pharmaceuticals. Inpatient pharmaceutical consumption is otherwise already included in the price of inpatient health care services (as intermediate consumption) so it is also already included in THE as part of inpatient health expenditure. In the previous chapter, we analyzed the item HC.5 medical goods for outpatients. This item, according to the SHA 2011 methodology, must be differentiated from the item total pharmaceutical expenditure, which is reported as a memorandum item. In the total pharmaceutical expenditure in 2011 the share inpatient pharmaceutical consumption was 16.7%, and the share of the expenditure on outpatient drugs was 83.3%. In 2010 and 2011 the real growth rates of inpatient pharmaceuticals were very high (also because of the introduction of expensive pharmaceuticals in the hospital treatments). See table 7. Table 7.Total pharmaceutical expenditure inpatient and outpatient SHA 2011 In million BAM Share in total pharmaceutical expenditure, in % Real growth rates, in % 2010/ / 2010 Total pharmaceutical expenditure (HC.RI.1) Inpatient pharmaceutical consumption Outpatient pharmaceuticals HC Source: PHR II Project NHA tables for BiH 52

53 Medical goods Main results - In 2011, 28% of total health expenditure were allocated for the medical goods (pharmaceuticals and therapeutic aids, HC.5) which is above the EU average (23%), but relatively low when compared to other lower developed European countries. - The main reason for the increase of public expenditure was the enlargement of the list of drugs that are covered from the compulsory health insurance and the introduction of new, more expensive drugs on the lists, which influenced the reduction in private spending on medical goods for 7.2% (-5.3 in 2010 and -1.8 in 2011). In the financing structure, the private expenditure on medical goods decreased from 62% in 2009 to 58% in The share of private expenditure in financing medical goods for outpatients in BiH was 58% in This amount is high when compared to other European countries. Recommendations: - By regulating pharmaceutical market, one can achieve high increase of efficiency of spent funds on health without jeopardizing health care quality. - To continue introducing measures to mitigate the growth of pharmaceuticals' prices: Regulating the price of pharmaceuticals by classifications on the positive and negative lists, Introducing the system of interchangeable pharmaceuticals with the high acknowledge value, Introducing the system of therapeutically replaceable pharmaceuticals with the highest acknowledge value, Introducing a system of monitoring doctors when prescribing the pharmaceuticals. - The share of private expenditure in the structure of financing pharmaceuticals is still very high (68%). In order to reduce the share it is necessary to continue introducing new pharmaceuticals to the positive lists, however by investing public sources which were previously saved with different measures to reduce pharmaceuticals' prices. - Introduction of financial participation on pharmaceuticals in order to use cost-efficient pharmaceuticals, as generic medicines - Transparent and systematic introduction of new treatments and pharmaceuticals using health technology assessment HTA. 4.6 Preventive care Beside the indicator on the health status of the population, the share of expenditure for preventive care in THE (HC.6) is lately used as an important indicator of the state of preventive health activities in each country. In 2011 in BiH only 1.3% of THE was allocated for the preventive care, which is far beyond the EU and OECD average (3.9%) (See table 6, pictures 15 and 22). In the period the expenditure on preventive care had a negative growth trend and were reduced for 13.6% in real 53

54 terms, regardless of the fact that the share of expenditure on preventive care is already very low. 30 Having in mind a great burden of chronic diseases, as well as the fact that these are often related to an unhealthy life, more expenditure for health promotion and disease prevention could help reducing future spending on health by reducing risk related diseases, as obesity, smoking, and alcohol consumption. In the most EU countries, prior to the crises ( ), the growth of expenditure on preventive care was faster than the growth of THE, so that the share of expenditure for preventive care on average increased. However, during the economic crisis, in the period , many countries have reduced expenditure on preventive care due to the need for consolidation of public finances. Expenditure for preventive care were reduced more than other health expenditure, mostly because they are usually financed directly from the governments budgets. The WHO warns that the reduction of investments in the prevention will have a negative effect on health expenditure growth in a medium and long-term. There is a consensus in recommendations of the international institutions that many health promotion policies and health prevention policies are cost-efficient and can contribute to increasing health and longevity and on reducing the growth of health expenditure (OECD, 2010). Beside, when it comes to prevention also cost-efficient and fiscal measures could be introduced, such as increasing tax on tobacco, spirits and drinks containing high level of sugar (WHO 2011,OECD2010). Chart 22. Share of expenditure for preventive care in total health expenditures Source: WHO (no data for neighboring countries) for BiH: PHR II Project NHA tables for BiH 30 The data on preventive care could be a bit underestimated because NHA for BiH do not include nonprofit institutions expenditures yet, but according to preliminary assessment of NGO s expenditure, the amounts for health care are not significant. 54

55 Prevention: Main results: - In 2011 in BiH only 1.3% of THE was allocated for the preventive care, which is far beyond the EU and OECD average (3.9%) - In the period the expenditure on preventive care had a negative growth trend and were reduced for 13.6% in real terms, regardless of the fact that the share of expenditure on preventive care is already very low - During the economic crisis, many countries have reduced expenditure on preventive care due to the need for consolidation of public finances, and usually more than other expenditures on health. - The WHO warns that the reduction of investments in the prevention will have a negative effect on health expenditure growth in a medium and long-term. Recommendations: - To initiate as soon as possible systematic increase of public funds for preventive care and public health. In the planned budgets and funds for the next years, the growth rates of expenditures on prevention and public health should be higher than growth rates of the total public health expenditure. - To consider possibility of introducing special incentives in salaries of primary level medical doctors aimed at increasing the provision of preventive health care services. 4.7 Governance of health care system and health insurance administration The governance of health care system and health insurance administration (often called costs of health care system administration ) include expenditure on governance and health care system administration of all levels of governments (HC.7.1), expenditure on administration of the compulsory social health insurance on entity and cantonal level, and expenditure for managing private health insurance (HC.7.2). This expenditure include salaries and material costs of the employees at the ministries of health and health insurance funds. In 2011 in BiH 2.9% of THE was allocated for the governance of the health care system and health insurance administration, which is close to the EU (3.1%) and OECD (3.0%) average. In the period the expenditure for the governance of health care system were kept at the level of 3.0% of the THE (in FBIH: 2.8 % and in RS: 3.9%; see chart 16), but it should be noted that the public expenditure on the governance of health care system increased in that period for 7.3 % in real terms (however, in 2010 they decreased for 2.4% due to the economic crises and wage reduction, but in 2011 they increased for 9.7%). As given in the OECD s study (2010c), administrative costs for the governance of the health care system are above average in all countries where private insurance companies play 55

56 an important role (Germany, Netherland, Slovenia, Belgium, France, Switzerland), or where the system of compulsory social health insurance includes several insurance funds (France, Czech Republic, Estonia). Lower costs for the governance of the health care system are in the countries with Beveridge s model of the national health care service (Norway, Denmark, Iceland, and Sweden). Differences between the countries in the expenditure for governance of the health care system are from 0.8% to 5.5% of THE. It is true that higher expenditure are generally related to the higher number of health insurance services, but on the other hand, higher expenditure could be also the fact of a better control of administrating health care services in regard to costs, service quality, obligations and contracts. Chart 23. Share of expenditures for governance and health system and financing administration, 2011, in % Source: Eurostat; for BiH: PHR II Project NHA tables for BiH OECD (2010C) and the European Commission (2010b) recommend that in general the reduction of expenditure on the governance of health care system is an important measure to reduce the growth of THE, whereby primarily stressing avoiding double costs. Nevertheless, both institutions at the same time underline that when reducing the costs of system administration the advantage should be given also to effective resource management, quality surveillance of expenditure for health and surveillance of service quality (OECD, 2011b, pp ). 56