ReportNo. 18410-RO Romania Health Sector Support Strategy Public Disclosure Authorized

June22, 1999

Human Development Sector Unit Bulgaria and Romania Country Unit Europeand Central Asia Region

um Public Disclosure Authorized Public Disclosure Authorized

Public Disclosure Authorized Docmnt of the WorldBank Vice President: Johannes F. Linn Country Director: Andrew N. Vorkink Sector Director: Chris Lovelace Program Team Leader: Olusoji Adeyi Romania

Health Sector Support Strategy

CONTENTS

PAGE

FOREWORD ...... iii PREFACE ...... v ACKNOWLEDGMENTS ...... vii ACRONYMS ...... ix EXECUTIVE SUMMARY ...... xi

SECTION I. GOVERNANCE AND REGULATION...... 1 A. Policy Environment and Leadership...... I B. Quality Assurance and Accreditation...... 3

SECTION II. HEALTH SECTOR FINANCE...... 6 A. Trends in Revenues and Expenditures...... 6 B. Recent Legislative Changes...... 10 C Health Finance Reform...... 13

SECTION III. HEALTH PROBLEMS AND HEALTH SERVICES . . 16 A. Mismatch between Needs and Services.16 B. Organization and Management of Health Services.20 C. Rationalization of Physical Assets .23 D. Rationalization of Human Assets .26 E. Pharmaceuticals.30 F. Innovation and Research .36

SECTION IV. THE CHALLENGE OF IMPLEMENTATION . . 37 A. A Phased Approach...... 37 B. The Role of the Government...... 38 C. Program Implementation...... 40

1 Tables Page Table 2.1 Public Health Care Spending in Romania, 1990-1997...... 6 Table 2.2 Estimated Private Spending on Health Care Goods and Services, 1996...... 7 Table 2.3 Recurrent Health Care Spending, by Category, 1996...... 8 Table 2.4 Ministry of Health Spending, by Type of Expenditure, 1996...... 8 Table 2.5 Private Sector Health Care Institutions in Romania, 1995...... 9 Table 2.6 Estimated Public Sector Health Revenues and Expenditures, 1997-1999...... 13 Table 3.1 Average Life Expectancy at Birth by Sex in Romania, 1964-1994...... 16 Table 3.2 Maternal Mortality Ratios in Selected Countries, 1996...... 17 Table 3.3 Framework for Health Services Coverage in Romania...... 19 Table 3.4 Number of Beds, by Type of Health Care Facility, 1998...... 23 Table 3.5 Number of Beds, by Type of Provider and Region, 1998...... 24 Table 3.6 Spending on Pharmaceuticals in Selected Countries, as Percentage of GDP ...... 31 Table 3.7 Spending on Pharmaceuticals in Selected Countries, as Percentage of Total Health Care Spending...... 31 Table 3.8 Composition of the Romanian Pharmaceutical Market, 1997...... 33

Figures Figure 2.1 Comparison of Per Capita Health Expenditure of Romanian Districts, 1997...... 10 Figure 3.1 Burden of Disease, Disability and Premature Death in Romania ...... 18

Boxes Box 3.1 Setting Priorities for Public Health and Disease Control ...... 20 Box 3.2 Changes in the Provider Remuneration System: Contracts as Tools...... 21

ANNEXES Annex la Recommended Implementation Schedule...... 41 Annex I b Recommended Amendments to the Legal Framework...... 44 Annex I c Ministry of Health Organizational Chart...... 47 Annex 2 National Health Accounts, 1996...... 48 Annex 3 Health Insurance Revenues and Needs Index, 1998...... 5 1 Annex 4a Burden of Disease and Prioritization of Health Services...... 55 Annex 4b Public Health and Disease Control Priorities ...... 70 Annex 4c Contracting and Provider Payment Systems...... 77 Annex 5 Recommended Organizational Structure of the Pharmaceutical Sector: ...... 8 1

ROMANIA AT A GLANCE.82

REFERENCES. .84

ii FOREWORD

Like most countries in Central and Eastern Europe, Romania is in the midst of profound political, social, and economic changes. The transition from central planning to market-oriented systems has increased the urgency of evaluating policy options and implementing reform in the health sector.

A decade after the 1989 revolution, only a few reforms have been implemented in Romania's health sector. Some health status indicators-most notably, maternal mortality ratio-have improved; a cohort of young Romanian professionals with the skills and commitment to establish an effective health system has emerged; and the government has demonstrated a new commitment to reform. The World Bank has been an active partner in this endeavor.

Three major challenges remain. First, Romania faces a large burden of preventable disease, disability, and premature death that reduces productivity and causes needless suffering. Second, resources for health care are limited, and there are serious inequities in resource allocation and utilization. Third, the health sector suffers from persistent inefficiencies, both allocative and technical. The challenge of health sector reform is to identify and implement reasonable strategies for tackling these problems in a nascent democracy.

This strategy document was conceived and prepared in consultation with a range of stakeholders within and outside Romania. It is intended to guide the Bank's work program in support of health sector reform in Romania. As such, it emphasizes the intellectual basis for the work program and explores feasible options for achieving key objectives set forth by the government of Romania. It also examines approaches to health sector development beyond the immediate purview of the Ministry of Health.

This sector support strategy will improve the quality and focus of the Bank's efforts in Romania. It will serve as a useful tool in the Bank's work with the Government of Romania, as well as with partner agencies.

James Christopher Lovelace Director Human Development Sector Unit Europe and Central Asia Region

.. iv PREFACE

Romania's health sector is in crisis. To deal with the sector's problems, the government approved legislation in 1997 that commits it to major changes in the financing, organization, and delivery of health care. Since January 1999, funds for health care have come from mandatory health insurance, financed by a payroll tax (additional funding for programs of national importance is provided out of general revenues). By the end of March 1999, the government had set up 42 autonomous public insurance funds. Major changes are planned in the management and delivery of health services, in relationships between payers and service providers, and in relationships between service providers and consumers. To date, these complex issues have been handled largely on an ad hoc basis, and the government has not produced a comprehensive strategy to guide its health sector efforts.

This report is not a substitute for a government health sector strategy. It is intended to serve three purposes. First, it presents policy options and recommendations that will help the government prepare a health sector strategy. Second, it will guide the policy dialogue between the World Bank and Romania. Third, it will serve as a useful reference for consultations among local, bilateral, and international organizations working in the health sector in Romania. Much of the material in this document was-and still is-the subject of intense debate among stakeholders in Romania. The challenge is to deploy limited resources to achieve better health status and quality health services for all Romanians.

This sector support strategy is consistent with the Country Assistance Strategy for Romania (Report 16559-RO 1997). It offers country-specific recommendations that are consistent with the more general recommendations made in the World Bank's Health Nutrition and Population Sector Strategy (World Bank 1997a) and Health Sector Strategy for the Europe and Central Asia Region (World Bank 1998). It also draws on recent analyses of current strategies for health care reform in Europe (WHO 1997). The strategy focuses on improving the health outcomes of the poor, enhancing the performance of Romania's health care system, and securing sustainable health care financing.

The first section of the report examines the governance, regulation, and leadership of the health sector. The second section examines health sector finance, and the third section focuses on health problems and health services, including their structure, organization and management. The report concludes by assessing the challenge of implementation. Throughout, emphasis is placed on the conceptual basis of each of these aspects and on the fit between technical ideals and political and institutional realities. The appropriate roles of government and nongovernmental organizations (NGOs) in influencing policies and implementing change are reviewed. Details of methodologies and statistics are presented in the annexes.

v IN ACKNOWLEDGMENTS

This report was prepared by a team from the Human Development Sector Unit, Europe and Central Asia Region (ECSHD). The team comprised: Olusoji Adeyi (Health Specialist); Sabrina Huffman (Health, Nutrition, and Population Operations Officer); Silviu Radulescu (Health Specialist); Cristina Vladu (Health Specialist); Loraine Hawkins (Health Economist); Richard Florescu (Human Development Specialist); and Leonardo Concepcion (Senior Implementation Specialist). The peer reviewers were Alexander Preker (Lead Economist, Health, Human Development Network (HDNHE)); Xavier Coll (Director, Human and Social Development, Latin America and The Caribbean Region (LCSHD)); and Maureen Lewis (Sector Leader, Human Development Economics, (ECSHD)). Helpful comments were received from Thomas Novotny (Centers for Disease Control and Prevention Liaison).).

The report is based on the findings of several missions and studies conducted between January 1998 and February 1999. The major studies are the following:

* Romania Health Sector Reform Study, funded by a grant from the Government of Japan (PHRD Grant TF027024), conducted by the consulting firm InterHealth and led by Willy de Geyndt. The study team included Peter Cowley, Suzanne McLees, and Veronica Varga (burden of disease and cost effectiveness); Robert Dredge (contracts and remuneration); Gary Filerman (human resources); Hernan Fuenzalida- Puelma (regulatory and legal reform); Brian Jack (physician workforce); Doris Modly (nursing and allied health professions); Andres Petrasovits (health promotion); Evert Reerink and Strasmir Cucic (quality management improvement); Robert Taylor (organization, management, and delivery of services); Susan Taylor (capacity building and training); and Walther Verniers (physical assets). Working groups of Romanian professionals were led by Carmen Angheluta, Daniela Valceanu, Emanuil Stoicescu, Rodica Sandor, Paul Rady, Valeriu Vlasie and Irina Dinka. Cristian Vladescu, Dana Farcasanu, Dan Enachescu, and Dan Vasa provided useful inputs.

* An Assessment of the Romanian Pharmaceutical Sector, prepared by Ramesh Govindaraj and Klaus Imbeck.

* Romania Health Finance Study. The section on health finance reform is based on the interim report prepared by the Australian Health Insurance Commission (AHIC) at the request of the Government of Romania. The AHIC team was led by Roy Harvey and Afsar Akal.

* Building Relationships, Restoring Resources: Presenting Romania's Health Insurance Law to the Public. This study of public understanding, perceptions, and expectations of the health system was carried out by Charney Research in 1998 in preparation for a nationwide campaign of advocacy and public information. Ann Walsh and Dan Petrescu made substantial contributions to the study.

vii 'PI ACRONYMS/DEFINITIONS

AIDS Acquired Immune Deficiency Syndrome AHIC Australian Health Insurance Commission BOD Burden of Disease CADREC Collective Agreement of Drug Regulatory Authorities in European Union- Associated Countries CINDI Countrywide Integrated Non-communicable Disease Prevention Program DALY Disability Adjusted Life Year EMEA European Medicinal Evaluation Agency NHIH National Health Insurance House HIV Human Immunodeficiency Virus Judet District MOH Ministry of Health NGO Nongovernmental Organization OECD Organization for Economic Cooperation and Development UNAIDS Joint United Nations Program on HIV/AIDS UJNFPA United Nations Population Fund UNICEF United Nations International Children's and Fund WHO World Health Organization

ix I EXECUTIVE SUMMARY

Romania is in the early stages of an extensive restructuring of its health sector. The changes, which are mandated by law, will affect the sources of revenue and the mechanisms for revenue collection as well as the relationships among the population, the government, financiers, and providers of health services. These reforms have implications for the effectiveness of the health sector, for equity of access to basic services, and for the efficiency of the system. Successful implementation requires a simpler structure and significantly greater management and technical capacity than is currently available in Romania; indeed, current conditions imply serious risks of failure in several parts of the reform. Successful implementation also requires careful planning as well as structured experimentation.

This Sector Support Strategy presents the issues, lays out the policy options, and makes recommendations that can help the govemment make changes that will facilitate reform of the health sector in line with its stated objectives. It is intended as a guide for the successful planning and implementation of health sector reform in Romania, not a substitute for a government health sector strategy.

ISSUES IN THE HEALTH SECTOR

I. GOVERNANCEAND REGULATION

The Health Insurance Law of 1997 changed the main source of funds for public health services from general revenues to earmarked payroll taxes. When that law became fully effective in April 1999, the Ministry of Health became the lead agency for regulating, setting standards for, monitoring, and evaluating the health system and its components and ensuring the quality of health care. The Ministry is not prepared to carry out these functions effectively.

The health insurance system, comprising the National Health Insurance House and the 41 district health insurance houses, is charged with far more organizational and management responsibilities than it can handle in the near term. The result is a crisis management approach to its functions.

The crucial function of revenue collection for the new insurance system will be administered not through a central fiscal authority but by a separate collection system under the National Health Insurance House and district health insurance houses. The wisdom of establishing a separate collection system has not been addressed by the Ministry of Finance. Relations between the Ministry of Health and the National Health Insurance House have so far been poor.

II. HEALTHSECTOR FINANCE

Revenue generation. As of 1998, revenues for public health sector financing were derived from two sources: health insurance fund contributions, which represented about 70 percent of financing, and the state budget, which made up the remainder. Under the provisions of the current law, the principles governing how each funding source may be allocated are not sufficiently specified, leaving significant uncertainty as to the funding responsibilities of each source and the relationship between them.

Health insurance collections in 1998, which brought in only about 87 percent of expected revenue, indicated that the assumptions on compliance embedded in revenue estimates were overly optimistic. This level of collection allowed expenditures to be maintained at about the 1997 level, but it resulted in almost total depletion of the reserve fund. The transfer of responsibility for collecting contributions from the fiscal authorities to the district health insurance houses in 1999 may pose additional risks to revenue collection unless the transition is very carefully managed. Given the mandated increase in insurance contributions from

xi 10 percent to 14 percent of payroll, however, even with a compliance of less than 85-90 percent, 1999 revenues would rise 20-25 percent in real terms. No plans have been made for managing the sudden increase in public sector health sector revenues.

Equity and resource allocation. The 1997 law foresaw a redistribution of 7 percent of health insurance revenues among districts to account for potential regional imbalances in coverage. Under this provision, per capita revenues for health care would have ranged from 85 percent in the poorest district to 125 percent of the national average in the richest (Bucharest is an outlier at 167 percent of the national average). To narrow this range so that all districts received at least 95 percent of the national average, about 22 percent of revenues would need to be reallocated. In October 1998, the Government of Romania adopted Ordinance 30/1998, which amended the law to provide for a redistribution of up to 25 percent. At the time of writing, it is not certain whether the Parliament will overturn the amendment to the law in favor of a lower ceiling on redistribution.

Management offunds and efficiency. There is great need in Romania to introduce proper incentives to ensure appropriate management of funds and improve the efficiency of the health system. Incentives to improve performance at the service delivery level and expand the role of the private sector are critical. Improved efficiency will also require incentives that grant greater autonomy to districts and health care facilities and allow them to take on greater financial risk. Incentives for increasing responsiveness to patient needs also need to be improved. Development of performance payment and contracting mechanisms would have much higher chances of success if major new designs were piloted before being implemented nationwide.

III. HEALTHPROBLEMS AND SERVICES

Mismatch between needs and services. As in many former socialist economies in Central and Eastern Europe, health care services in Romania poorly target the major health problems of the population. A large proportion of premature illness and death in Romania is attributable to lifestyles, particularly tobacco consumption, accidents and injuries, alcohol abuse, and poor dietary habits. Many of these problems can be dealt with cost-effectively by controlling risk factors. Scant attention is given to prevention in Romania, however. Instead, the system remains heavily medicalized and centered on inpatient, curative interventions- a legacy of the former system. Little attention is paid to ambulatory care delivered by health professionals other than specialist doctors. Interventions in primary care, prevention, and health promotion are weak.

Constraints on efficient health services and management. Much of Romania's health sector infrastructure is obsolete, poorly maintained, or unsuitable for providing health services of good quality. Modern management skills are scarce. Services are overly centralized and unresponsive to local initiatives and needs. There is little if any involvement of legitimate private sector providers. Inpatient care is overemphasized, with too few resources allocated to outpatient, nursing home, and home care. Because of the lack of integrated systems and managerial tools critical to ensuring a continuum of care, services are fragmented. The legacy of the past continues to perpetuate the practice of illegal-and regressive- payments, reinforcing inequity of access to even the most basic services. In recent years, the expansion of private, for-profit health care providers has been largely unregulated. The result is a two-tiered system in which wealthier households choose to bypass the public system altogether, seeking care from private providers (legal or illegal).

Lack of national drug policy. No comprehensive national drug policy governs how pharmaceutical products are dispensed, priced, and registered in Romania. The focus of the list of reimbursable drugs has been primarily on the number of drugs rather than on the epidemiological profile of the population, its therapeutic needs, and appropriate treatment protocols. No therapeutic guidelines or protocols for hospital or ambulatory care exist, and no national drug formulary has been developed for use in hospitals.

xii STRATEGIC INTERVENTIONS FOR REFORMING THE HEALTH SECTOR

I. GOVERNANCE AND REGULATION

Romania needs to establish and maintain a policymaking process that is both consistent with the government's goal of improving health in a sustainable manner and credible to major stakeholders outside the public sector. Romania could develop and use available national capacity for policy analysis. It could also establish a legal and regulatory framework based on explicit criteria of equity and efficiency. Development of such a framework is critical, as is the need for increased accountability and responsiveness of the health system to the needs of the population. It is crucial that the Ministry of Health refocus its efforts so that it concentrates more on broad issues of policy, regulation, and monitoring and less on day-to-day implementation.

Effective policymaking requires the establishment of a credible, nonpartisan national body. To that end, a national health council could be established to serve as a consultative body and to provide a structured approach to stakeholder involvement in the policy process.

II. HEALTH SECTOR FINANCE

The recent ordinance amending the 1997 Health Insurance Law addresses some of the flaws in the legislation. The Government of Romania has, wisely, postponed requirements for election of administrative boards at the district level. In the interim, it is limiting the role of district health insurance houses mainly to contracting services according to nationally defined criteria, documenting contributions, and providing updates to the National Health Insurance House. The Law still envisages that beginning in 2002, district health insurance houses will be autonomous and operate with locally elected boards. Ideally, the Law should be amended to provide unambiguously for one National Health Insurance House with 41 district branches (or fewer if political constraints permit) instead of the multiple autonomous district funds. This change would significantly increase the probability of successful reform by simplifying overall system design and reducing the level of effort required to make the system work. This modified structure would also help ensure a larger, unfragmented risk pool while preserving responsibilities for management at the district level.

III. HEALTH PROBLEMS AND SERVICE DELIVERY

Realigning services to focus on major problems. There is a need to develop integrated health services that emphasize primary health care, preventive services, public health and disease control, with targeting of the poor. Shifting the emphasis away from curative, inpatient interventions would have financial, efficiency, and equity benefits. Any selection of health interventions must be supported by appropriate incentives for providers and consumers to address the major causes of Romania's disease burden. There is a need for a national health promotion program with a strong institutional basis. Such a program would include legislative and regulatory changes, policy-based interventions for the control of noncommunicable diseases, and population-based preventive services.

Improving the management of health services. Building management capacity and support systems for the desired reform is critical to its success. Skills in medical practice management, contracting, decisionmaking, leadership, and contract negotiation need to be developed. A pragmatic approach to the problem of under-the-table payments needs to be taken. Exhortations alone will not be effective. Instead, policymakers should focus on improving the quality of care, establishing a clear schedule of required co- payments, increasing remuneration for service providers in order to reduce their need to receive under-the- table payments, disseminating public information on patient rights, and enforcing penalties for providers who do not heed new practice regulations.

xiii Drug policy and rational use of drugs. Legislation on the registration of drugs, quality assurance and intellectual property protection should be analyzed and harmonized with the European Union's legal framework. A new organizational structure is needed to streamline the interactions of stakeholders in the regulation and financing of pharmaceuticals. Many policymakers currently favor the idea of having one agency play both the technical function (of registering, licensing, and inspecting drugs) and the politically sensitive function of setting reimbursement levels. Strict separation of the technical and reimbursement roles is critical to ensure that technical decisions are not biased by compromises in the reimbursement function.

THE CHALLENGE OF IMPLEMENTATION

Two main considerations are crucial for the successful implementation of ideas outlined in this document. First, given the enormity of the reform agenda in Romania and the limited implementation capacity, a phased approach to implementation is necessary. Second, there is a need to define clearly what is best done by the government and what is best facilitated by government but undertaken by entities or individuals other than the government (or in partnership with government).

Implementing the key ideas presented in this document requires ownership of the goals and objectives by major interest groups in Romania. It also needs a prograrn of support by partner agencies to increase the probability of success.

1. A PHASEDAPPROACH TO REFORM

Many of the issues raised in this report are the subject of intense public debate. Most of the analyses and recommendations were developed in cooperation with Romanian professionals. Formulating a reform program should be an iterative process that identifies problems, goals, and effective strategies for achieving those goals. The systemic nature of problems in the health sector and the massive scale of inputs required to meet needs could lead decision-makers to conclude that all of the sector's problems must be tackled simultaneously. Doing so would be a mistake, however, given Romania's limited technical and management capacity and the often iterative nature of health sector reform. A pragmatic approach to health sector reform in Romania would be taken in phases, with a commitment to experimentation in a structured fashion.

Solutions to some of the more serious problems could be developed and implemented over a period of about six years. The first phase of reform could focus on establishing an environment that is supportive of a more effective and efficient health sector. Phase I could also involve restructuring health services in a small number of districts. Specific interventions could include the following:

* defining the legal and regulatory basis, governance, statutes, and ownership criteria for key institutions in the health sector; * building capacity for policy analysis and management of the new health insurance system; * developing effective, efficient, and sustainable models for remunerating service providers and ensuring effective health service management and delivery through demonstration sites; * stimulating functional integration and coordination among different levels and types of care; * improving the legal, regulatory, institutional, and operational basis for high-priority public health and disease control activities; and * designing a Health System Innovation Fund to support nationwide roll-out of the models developed.

The second phase of reform could build on lessons learned during the first phase. Health service restructuring could be rolled out throughout the country, and achievements in sector policies, legislation, and regulations could be consolidated. Specific reforms could include the following:

xiv * supporting implementation of the new health finance system (including the regulation, supervision, and purchasing functions of the health insurance houses); * capitalizing a Health System Innovation Fund to support the adaptation and nationwide implementation of health service management and service delivery models developed during the first phase of reformn; * developing a national quality improvement and accreditation program; * supporting a rational pharmaceutical policy that sets forth regulations on quality assurance, prescribing behavior, reimbursement, and usage; and * setting up a Public Health Interventions Grant program.

II. THE ROLES OF GOVERNMENT,LOCAL STAKEHOLDERS, AND EXTERNAL PARTNERS

A vital government role is to create and maintain an environment that is supportive of effective policies and research based on such policies. The Ministry of Health needs to consult with interest groups whose views may differ from its own and to commit to health sector reform that involves actors beyond its purview. Govemment databases on health status, service usage, and household income and expenditures need to be opened up to the public and to partner agencies so that research on health care and health services can be performed. The government needs to facilitate public access to these databases, including those maintained by the Ministry of Health, the Ministry of Finance, and the National Commission for Statistics. Local and international agencies could support modules of a locally developed program through grants, credits, loans, and/or targeted technical assistance. The govemment could coordinate efforts by these agencies in order to minimize wasteful gaps and overlaps.

xv xvi ROMANIA

HEALTH SECTOR SUPPORT STRATEGY

I. GOVERNANCE AND REGULATION

A. POLICY ENVIRONMENTAND LEADERSHIP

1.1. Health care in Romania is a constitutionally guaranteed right to which all citizens are theoretically entitled. Policies tend to be ad hoc, however, established mainly in response to crises. Since the revolution in 1989, major pieces of legislation and other normative documents with significant consequences for the health system have been formulated, but they lack a clear conceptual basis and do not reflect the interests of major groups of stakeholders. Romania's capacity for policy development and analysis has improved greatly since 1989, but professionals playing technical and advisory roles are generally underutilized. The effectiveness of professionals in the sector has been limited by frequent changes in the leadership of the Ministry of Health, with the 10 Ministers of Health since 1989, affecting both political appointees and technical specialists.

1.2. The most recent legislation dealing with the structure and functions of the health system is Law 3/78, issued in 1978 (complementary provisions in other laws and decrees have been issued since then). As defined by Law 3/78, the health system was owned almost entirely by the state. The system was coordinated by the Ministry of Health through its central office in Bucharest and through 41 district health authorities and the Bucharest Health Directorate. The service delivery network included publicly owned and operated hospitals, polyclinics dispensaries and other health care institutions. Specialized hospitals, medical institutes and centers, and institutions for training doctors and nurses were directly subordinated to the Ministry of Health. Smaller networks of health facilities were owned by other public entities, including the Ministries of Transport, National Defense, Internal Affairs, and Labor and Social Protection.

1.3. The 1978 law gave the Ministry of Health the authority to plan and implement almost every activity related to health. Its responsibilities included:

* defining polices and objectives * organizing and implementing preventive, emergency, curative, and rehabilitative services * overseeing public health and epidemiological care * accrediting and providing continuing education to health professionals * procuring and distributing drugs * coordinating medical research * guiding investments in the health sector * staffing health care institutions * initiating, negotiating, and signing international agreements * collaborating with other ministries, government agencies, and NGOs involved in health care in Romania.

1.4. The ministry's approach to health system development is based on central planning and execution. Though geographically dispersed, the district health authorities have neither managerial nor financial autonomy. Instead, they coordinate service delivery within each district, functioning as district-level branches of the Ministry of Health. In the mid- 1990s Romania conducted an experiment in eight districts to decentralize management functions and change provider payment methods for primary health care. External assessors concluded that, while there was room for improvement, the effort was well conceived (Institute for Health Sector Development, 1995) and among the most sensible in Eastern Europe and Central Asia

I (Feachem 1995). Nationwide implementation of the experiment has been delayed, however, mainly because new leaders in the Ministry of Health resisted continuing initiatives associated with their predecessors.

1.5. Despite the lack of a sector-specific legal framework or access to public funds by private providers of medical services, the political, economic, and social changes introduced in 1989 have produced elements of a pluralistic health sector in Romania. Private providers (mainly for ambulatory care) and pharmacies were established based on legislation regarding commercial companies and NGOs; most publicly-owned pharmacies have been privatized according to privatization schemes intended for other types of state-owned enterprises. To ease the burden associated with a weak legal framework, the College of Physicians and the College of Pharmacists, as self-regulating bodies of both professions, have been established.

1.6. The legal and regulatory environment for the health sector has been changing rapidly, particularly since the change of government in November 1996. The Health Insurance Law (145/97) was passed in 1997, and the Public Health Law (100/98) was passed in 1998. The govemment ordinance on medical offices and the law on hospital organization and financing are being examined by Parliament. Regulations governing health finance, contracts between health providers and payers, and training and recruitment of medical staff have been issued by the Cabinet or the Ministry of Health. These laws and regulations contain provisions that are often contradictory and sometimes incoherent, however. The Ministry of Health retains responsibilities and legal authority beyond its capacity for policy analysis, strategic planning, regulation, and research. It also continues to interfere in the day-to-day administration of the service delivery system. There are overlaps between the Ministry of Health and the district health authorities in financing, administration, management of human resources, and development of professional standards. Moreover, there is a dearth of professional management at the central level, where most senior personnel are medical experts with limited competencies in health system management.

1.7. The health sector is often equated with the Ministry of Health, and many competencies beyond the purview of the ministry are seldom sought or used. Local initiatives receive little or no active support from the ministry. The medical profession maintains almost exclusive influence on policymaking and strategic decisions-alienating other key professions, particularly nursing. Public information and advocacy have received minimal attention from the Ministry of Health. Despite the potential impact of the Health Insurance Law on the average citizen, for example, only 53 percent of respondents in a 1998 national survey claimed to have heard about the plan contained in the law-more than a year after the law had been passed and several months after compulsory insurance contributions had started (Chamey Research 1998).

1.8. The Ministry of Health has no clear mechanism for coordinating external donor assistance, leaving room for duplication and gaps among the activities of major donors. While the World Bank has tried to ensure regular consultations among donors, its efforts have fallen short of establishing linkages with the nonprofit private sector and the emerging for-profit private sector.

Strategic Objectives

1.9. To establish and maintain effective health policy and strategies, the government and major stakeholders in the Romanian health sector could consider setting the following strategic objectives:

* developing and maintaining a policymaking process that is consistent with the government's stated goals of improving health in a sustainable system. This process would be transparent and credible from the perspectives of major stakeholders outside the public sector; * increasing national capacity for formulating and analyzing policy; * establishing a legal and regulatory framework for the health system based on explicit criteria of equity and efficiency; * increasing the accountability and responsiveness of the health system to the needs of the population; * reexamining the role and improving the effectiveness of the Ministry of Health; and 2 * focusing more on policy and regulation and less on day-to-day implementation.

Interventions

I.10. A credible, nonpartisan national body is needed to guide health policy in Romania. To that end, a national health council could be established by law. The council would serve as a consultative body, providing a structured approach to stakeholder involvement. It would consult with key stakeholders in formulating national health policies and strategies. Stability at the national level would be achieved if the tenure of members were independent of changes in government and Ministry of Health leadership. The national health council should consist of respected Romanians, including but not limited to those with track records in health; NGOs; and the private sector.

1.11. The main laws and regulations governing the health sector need to be reviewed, amended, and reconciled as necessary. Principal among these are amending the Health Insurance Law of 1997 (subject to approval by Parliament), completing regulations and norms to implement the Health Insurance Law, and securing approval by Parliament of the draft law on hospital organization, the ordinance on doctors' offices, and the draft law on tobacco control. The framework contract, intended to govern transactions between health insurance houses and service providers, should be designed to increase equity and efficiency while allowing patients to continue to choose their providers .

1.12. Health system management should be made more professional, with specific competencies established for different professionals. This change should cover directors-general and directors in the Ministry of Health, the leadership of district health authorities, and managers of large provider institutions, consistent with the overall reform of public administration. At a minimum, better health system management would develop management capacity and prevent excessive political influence. (Section III of this report explores this issue further.)

1.13. Creating the Health Insurance House and revising the method for purchasing health care services will have a substantial impact on the role of the Ministry of Health. According to the 1997 Health Insurance Law-and the ordinances amending it in October 1998 and December 1998-beginning April 1, 1999, the Ministry of Health no longer has direct control over the financing of a large part of its network of service providers, who will have to contract with the Health Insurance House (selected national programs will continue to be financed by the Ministry of Health). The ministry should become an entity for policymaking, planning, and coordinating activities in the sector as well as managing the state's budgetary allocation for health and funding health programs of national importance, conducting health policy research and planning, regulating both the public and private health sectors, providing health services under contract with the Health Insurance House, and financing buildings and medical equipment. To fulfill its new obligations, the Ministry of Health will require technical support and training to strengthen its management capacity. At the same time, district health authorities and district-level health insurance houses require guidelines and skills to purchase health services from public and private providers.

B. QUALITY ASSURANCE AND ACCREDITATION

1.14. Romania suffers from weak institutions for accreditation and quality assurance. Under the Health Insurance Law, the Ministry of Health becomes the lead agency for regulating, setting standards, and ensuring the quality of health services-functions it is not prepared to carry out. The health sector has neither the institutions nor the competencies to achieve sustained improvements in the quality of health services. Infrastructure is weak, with wide variations in service delivery among health care units and workers. In a survey, 40 percent of respondents reported crowding and chaos in health facilities and 55 percent reported shortages of drugs, supplies and equipment (Chamey Research 1998). Health reform provides an opportunity for Romania to improve health care, but for these efforts to be successful, they must include all parties involved in delivering health care-the government, providers, purchasers, and patients.

3 Strategic Objectives

1.15. The overriding objective of a quality improvement strategy is to establish an effective system for improving care and health outcomes. This effort must include a combination of actions, including the following:

* Developing a national policy for health care quality * Creating a structure for quality improvement efforts, such as a national agency for accreditation and quality improvement * Developing regulations and a program for accreditation standards and clinical practice guidelines * Establishing an external evaluation system for health services, such as a national accreditation program * Implementing a national training program for quality and quality assurance * Developing a system to support quality improvement activities at the national, district, institutional, and individual levels.

1.16. Much of the rationale for this effort is based on obtaining the best possible outcomes by applying- within resource constraints-inputs and processes consistent with current scientific thinking and practice. Properly done, a quality improvement effort helps minimize poor outcomes and needless complications, reducing the cost of poor quality (Wouters 1991). Clinical practice guidelines can considerably improve health care delivery. Perhaps their greatest promise lies in assessing and improving care and health outcomes. They can also help rationalize the use of services, controlling the use of resources and costs of care (Lohr 1994).

Interventions

1.17. Quality improvement is the responsibility of health care providers at the service delivery point. Other entities, including the Ministry of Health, the National Health Insurance House, the College of Physicians, the Romanian Medical and Nursing Associations, consumer associations, and training and research institutions, also have vested interests in the quality of care. A quality improvement policy would be drafted by the Ministry of Health and finalized in consultation with all of these parties.

I.18. The quality assurance policy document could address the following points:

* Rationale for quality assurance in Romania * Introduction (description of the process of producing the document and its ratification) * Definition of quality of healthcare delivery (role and responsibilities of health care providers in safeguarding quality; description of steps already taken) * Principles and methods of quality assurance * Examples of quality assurance mechanisms and description of results * Regulations for quality assurance (enforcement, incentives, legislation; role of providers, state and provincial institutions) * Need for quality assurance support (creation of an independent support agency; role of educational institutions) * Financing quality assurance (role of the insurance system, state, district and local institutions) * Answers to frequently asked questions * Actions to be taken to implement the policy * References to relevant literature

1.19. An independent National Agency for Accreditation and Quality Improvement, which would serve as a resource center, would be established to provide quality assurance support. The agency would provide health care providers with support for executing the tasks formulated in the policy document. It would also

4 provide methodological assistance to and objective scrutiny of new quality improvement programs, such as the National Health Care Accreditation Program.

1.20. National accreditation standards and clinical practice guidelines would be developed. Guidelines are tools to help health care professionals provide care at a specified level of quality. Most guidelines are derived from analyses of best practices. Some limited experience in designing guidelines has been acquired by the College of Physicians and other professional groups in Romania. A working group on clinical guidelines, comprising representatives from the College of Physicians and Romanian Medical Association, has proposed the development of guidelines along two tracks: clinical care and general practice. Under the leadership of the College of Physicians and the Romanian Medical Association and in close collaboration with other interested parties, such as consumer groups, the group has also designed a plan of action for producing clinical guidelines. Mechanisms for authorization and evaluation of the use of guidelines have also been designed.

1.21. A National Health Care Accreditation Program would be developed. A pilot program for healthcare facility accreditation has been set up. On the basis of experience gained and with outside support, a full program of accreditation of health care facilities would be implemented. The requirements for a national accreditation program have been specified, and possible solutions to problem areas have been identified. The accreditation standards produced during the pilot phase would be updated, adapted, and subsequently used in the national accreditation process. An action plan has been developed for the establishment of a national accreditation program for institutions. The National Agency for Accreditation and Quality Improvement has been assigned a role in the continuous development of standards to be used in the accreditation process.

1.22. Education and training are required to introduce quality assurance into the health care system. A national quality assurance training program would provide that training. Educational needs for a variety of health care students and practicing healthcare providers have been identified. The teaching modalities and educational technologies available in Romania have been evaluated, and the leading institutions for graduate training in health services and health management have been invited to participate. The basis for an educational program in quality assurance, based on a multidisciplinary approach and adult learning techniques, has thus been established.

1.23. Quality improvement occurs on the job, where services provided to the patient are the primary focus. To facilitate structural and project-based actions for improving health care institutions by health care professionals, the government would support regional, institutional, and individual quality improvement. Such activities have to be supported and, to some extent, coordinated at the national level. Information has been collected on experience with improvement outcomes or actions in Romania. A proposal for organizing and financing a support program has been incorporated in the draft work program of the National Agency for Accreditation and Quality Improvement. That proposal recommended that Romania participate in the Concerted Action Program on Quality in Hospitals, a pan-European endeavor (Klazinga 1994).

5 II. HEALTH SECTOR FINANCE

A. TRENDS IN REVENUES AND EXPENDITURES

2.1. Until 1997 the main source of funds for the centralized health care system in Romania was general revenues, mainly through the state budget. Administered by the Ministry of Health and other ministries with health service provider networks, the budget was the only source of funds until 1991. In the early 1990s the move toward diversifying the sources of funding gained support within Romania as a way of increasing public resources for the health sector. As part of this trend, the government introduced partial reimbursement of drugs prescribed in outpatient care in 1992. The move was accompanied by the establishment of the Special Health Fund, based mainly on a 2 percent payroll tax but also including funds from small taxes on tobacco and alcohol sales and advertising. In 1993 responsibility for funding material expenditures other than for drugs as well as utilities and current maintenance was transferred from the state to local budgets.

Table 2.1. Public health care spending in Romania, 1990-1997 (billionsof lei, exceptas otherwiseindicated)

Expenditures State budget 24 62 153 365 998 1,347 2,007 Localbudgets 0 0 0 101 263 393 586 Specialhealth fund 0 0 32 126 283 414 515 - Healthinsurance revenue 0 0 0 0 0 0 0 0 Total 24 62 185 592 1,544 2,154 3,108 7,184 Averageexchange rate (Leu/US$) 22 76 308 760 1,655 2,062 3,132 7,172 Total(millions of dollars) 1,090 816 601 779 933 1,045 992 1,002 Expenditures as percentage of GDP State budget 2.7 2.8 2.5 1.8 2.0 2.0 1.9 - Local budgets 0.0 0.0 0.0 0.5 0.5 0.6 0.5 Specialhealth fund 0.0 0.0 0.5 0.6 0.6 0.6 0.5 - Total 2.7 2.8 3.1 3.0 3.1 3.2 2.9 2.9

- Not available. Note: Datafor 1995-97include external funds. Source: Data for 1990-95 are from Statistical Yearbooks of Romania, published by the National Commission for Statistics,Bucharest. Data for 1996 and 1997are fromAHIC 1998.

2.2. Decisions on resource allocations for the health sector have typically been the result of an annual political process in which Parliament determines the share of the state budget earmarked for recurrent and capital expenditure in the health sector. Until 1996 Parliament also set minimum levels of health service budget of each district.

2.3. In 1996 estimated expenditure on health services (recurrent and capital, public and private) was 4,579 billion lei, or 4.18 percent of GDP. The figure is lower than in countries with comparable per capita GDPs. Some countries in the region also allocate larger shares of GDP to health.

' Such international comparisons do not constitute a normative guide to what health expenditure should be. Determining the level of expenditures on health is always a social-political decision, reflecting the values of the society in which the decision is made as well as the tradeoffs inherent in allocating resources among competing priorities.

6 2.4. The state budget funded 43.6 percent of recurrent health expenditure in 1996. About 11.6 percent came from the Special Health Fund; local governments provided 13.2 percent. Government spending on capital items accounted for 3.0 percent of total health expenditure. Private expenditure was estimated from a General Household Expenditure Survey to be 1,306 billion lei, or 29.4 percent of recurrent expenditure on health. This is higher than the average level of private expenditures in the OECD countries but lower than in countries such as Australia and the United States.

2.5. Households spent 1,404 billion lei on health care in 1996, 31 percent of which went toward drugs (table 2.2).2For the purpose of estimating health care funding from private sources, expenditure on articles of hygiene (toiletries) was not included in these estimates, as they appeared to contain items that would not usually be considered as health expenditure.

Table 2.2. Estimated private spending on health care goods and services, 1996

Expendfture Item (bi-ons df li) Percentage of total Drugs 435.2 31 Consultations and laboratory tests 126.4 9 Articles of hygiene 98.3 7 Dental services 70.2 5 Prostheses and appliances 28.1 2 Other 645.8 46 Total 1,404.0 100 Source:National Commission for Statistics,Household Expenditure Survey 1996.

Management offunds and efficiency

2.6. Funding of health care was input oriented until 1998, based on line item budgets, with no possibility of shifting allocations among the main expenditure categories (personnel, material, and capital). Allocation of funds from the Ministry of Health to the district health authorities and from district health authorities to hospitals and other providers was based on historical criteria, namely, the distribution of resources (staff, beds) and past utilization data. The only major change in financial planning on the expenditure side was the establishment in 1994 of national health programs with separate budgets within the Ministry of Health budget. These budgets fund high-cost material expenditures for high-priority interventions, such as drugs for cancer or supplies for dialysis.

2.7. Estimates of the distribution of recurrent expenditures on health care in 1996 reveal that about half of all spending went to hospital care (table 2.3).

2 The design of the Household Expenditure Survey did not allow for disaggregation of the largest expenditure category, "other". 7 Table 2.3. Recurrent health care spending, by category, 1996

it0: .0 0Ite01m 000 040;022;t;000;00Expndkditur Per,en tage: -00

Hospitals 2,213,284 49.8 Dispensaries 793,821 17.9 Ambulatory drugs 491,202 11.1 Institutes 209,279 4.7 Polyclinics 184,552 4.2 Ambulance services 76,723 1.7 Orphanages 46,432 1.0 Sanatoria 35,672 0.8 Blood banks 32,195 0.7 Creches 30,049 0.7 Administration 32,513 0.7 Other 149,290 3.4 Prosthetics 269 0.0 National health programs 146,263 3.3 Total 4,441,543 100.0 Source: Australian Health Insurance Commission 1998.

2.8. Institutional care. Medical care in Romania is institution-based, with hospitals, institutes (which provide care and carry out research), and sanatoria accounting for 55.3 percent of recurrent health expenditure. Comparing this figure with international data is difficult since Romanian institutions provide some services that are accounted for separately in international classifications. Research by institutes, for example, may account for 1-2 percent of health account expenditure. Hospitals also provide services to long- term patients and "social cases" (such as persons with no heating at home during winter), which are provided in long-term care facilities in other countries and may not be included in health expenditures.

2.9. Primary care. The Australian Health Insurance Commission (AHIC) used expenditures on services provided through dispensaries as a measure of expenditures on primary care, noting that doing so underestimated the actual level of resources going to primary care. The AHIC measure needs to be refined by taking into account primary care provided through hospitals and polyclinics and drugs used in primary care.

2.10. Composition of health expenditures. Data describing the composition of expenditures for the entire health sector are not readily available. Expenditures by the Ministry of Health, however, which account for 65 percent of all recurrent health expenditure, provide some indication of the importance of various inputs to the health sector (table 2.4).

Table 2.4. Ministry of Health spending, by type of expenditure, 1996

Labor-related 47.8 Drugs 19.8 Medical supplies 5.6 Food 5.5 Other 2.1 Totalrecurrent expenditures 100.0 Source: AustralianHealth Insurance Commission 1998. 2.11. Of particular interest for 1996 is the level of expenditure on drugs. Assuming that private spending and spending by other ministries followed the same pattern as spending by the Ministry of Health, total 8 expenditures would have been about 1,020 billion lei in 1996 (551.2 billion lei by the Ministry of Health, 435.2 billion lei in private expenditure, and 33.5 billion lei by other ministries). That figure, which represents 23 percent of recurrent health expenditures, is significantly lower than had been estimated previously (Goldstein and others 1996). By OECD standards the proportion of spending allocated to drugs is still very high, however, despite the low absolute low level of drug use in Romania. In part, the high proportion of expenditure on drugs reflects the very low level of wages paid to health service professionals (and the fact that prices of drugs are largely determined in the international market). In 1996 labor-related expenditure was just under half of total health expenditure, while all other items of recurrent expenditure increased over the same period.

2.12. Private providers of health services. The Ministry of Health, through the district health authorities, is the major provider of health services in Romania. Private spending on health care for 1996 is estimated to have been 1,304 billion lei, or 29.4 percent of total recurrent expenditure. Much of this spending goes directly or indirectly to the Ministry of Health, however, or its staff through copayments for subsidized drugs, charges for services, or under-the-table payments (illegal payments to providers for services that are nominally free).

2.13. Total revenues declared by private enterprises for 1996 were 999.6 billion lei, or 23 percent of total health expenditure (table 2.5). However, the largest private activity, pharmacies, received income from the public sector in the form of subsidy payments of 178.2 billion lei from the Special Health Fund. When this double-counting is removed, the private sector provided about 19 percent of total health services in Romania.

Table 2.5. Private sector health care institutions in Romania, 1995

Type of enterprise Numberof Privatesector revenues Numberof Revenue/employee private (hundredsof emplyees * (hundredsof enterprises, thousandsof lei)~,1996 thousandsof lei) 1995

Hospital 2 910,771 32 28,462 Privateoffice, dispensary, or 2,706 16,912,584 656 25,781 polyclinic. _ Pharmacy 2,360 879,892,380 8,739 100,686 Dentaloffice 2,422 32,422,028 1,568 20,677 Retailseller of prosthetics, - 53,261,071 361 147,538 appliances,and medical devices Other _ 16,250,286 527 30,835 Total I 999,649,120 1,883 84,124 - Not available.;* Numberof employeesis assumedto excludeowners. Source: NationalCommission for StatisticsAnnual Yearbook 1995 and NationalCommission of StatisticsEnterprise Database1996.

Equity and resource allocation

2.14. As a result of input-oriented funding and the failure of decades of central planning to achieve an equitable distribution of human and physical resources, regional differences in per capita health care spending are large in Romania. In 1997 per capita health care expenditure in Bucharest was 167 percent of average per capita expenditure for the country as a whole, while spending in Giurgiu was just 52 percent of the national average (figure 2.1). Access to publicly funded health services also varies significantly with income, according to the Household Expenditure Survey.

9 Figure 2.1 - Comparison of per capita health expenditure of Romanian districts in 1997

180%

160% -'

X 120%.__ _. 100% per capita health expenditure at national V 100% S . 0 . r 0 L 7 _ _ level

100

0%

co , E 0 0 c 0 0 XC .Q C)

Judets

B. RECENT LEGISLATIVE CHANGES

Changes before 1997

2.15. Although each of the Ministry of Health leadership teams of the past eight years listed reform as a priority, change was limited. The most significant measure taken was the launching of a pilot project supporting the reform of funding and delivery of health services, carried out in eight districts. This project was designed in 1993-94, with external technical assistance, and was partially implemented between 1994 and 1997. Among the main changes introduced in the eight districts were a move to free choice of general practitioners by patients and payment of general practitioners through a mix of adjusted per capita and fee- for-service payments instead of salary. Although changes at all levels of service provision were planned, actual implementation was limited to primary care physicians.

2.16. The design of comprehensive reform programs or specific elements of such programs has been the foci of several technical assistance projects and policy discussions in Romania, including the following:

* Systematic review of health status and health sector issues as part of project preparation for the Health Sector Rehabilitation Project (World Bank Loan 3409-RO), 1990/91 * Design of health reform strategy (World Bank Loan 3409-RO), 1992/93 * Preparation of global budgets for hospitals (European Union-PHARE), 1993 * Design of pilot decentralization projects (World Bank Loan 3409-RO), 1993/94 * Design of health insurance system (PHARE), 1994 * World Bank recommends health financing study, to serve as a basis for decisionmaking on health sector funding, 1995

10 * Establishment of district health insurance houses, allocation of funds, and costing of hospital services (PHARE), 1996 * Health sector governance, delivery of services, design of benefits package (PHARE), 1997 * Completion of health finance study by AHIC (World Bank Loan 3409-RO), 1998 * External technical assistance for health sector reform program (financed by a Grant from the Government of Japan, 1998)

2.17. As a result of plans for reform by several governments-influenced by professional groups and sometimes guided by recommendations of technical experts-a number of new laws were passed. Principal among these are the law on medical practice and establishment of the College of Physicians (74/1995)3 the law governing the pharmacy profession (1997); the law on Social Health Insurance (145/97), passed by the Senate in 1994; and the law on Public Health Services (100/98).

The Health Insurance Law of 1997

2.18. Passage of the Health Insurance Law in 1997 was part of a regional trend away from centrally controlled, tax-based systems toward insurance-based systems (Saltman and Figueras 1997; Goldstein and others 1996). Political support for the move was strong, for several reasons. First, an insurance-based system represented a return to the kind of health care financing arrangements that prevailed before the socialist regimes came to power. The new system lay in contrast to the old state-funded system, in which power was centralized in the Ministry of Finance. Second, adoption of the new financing system promised greater freedom of choice for patients and professionals. Third, the new system earmarked contributions for the health sector and defined entitlements more clearly than the old system had done. Fourth, funding for health care was expected to be more stable and predictable under the new system, and physicians expected to earn higher incomes by working on a fee-for-service basis. Finally, Western European countries, which have long used this type of funding arrangement, encouraged the change.

2.19. The political momentum in support of the 1997 Health Insurance Law has clouded thoughtful consideration of the risks involved. These include the loss of control over spending (mobilization of additional funds for health care has not necessarily been associated with effective use of resources), the emergence of structural deficits, the fragmentation of risk pools and difficulties in risk adjustment, the increase in labor costs as a result of mandatory contributions, compliance problems, the complexities and costs of administration, and the problems associated with operating in an environment in which insurance regulations and contract and property laws are underdeveloped.

2.20. The Health Insurance Law dramatically changes the way health sector revenues are generated. Key provisions of the law include the following:

* Since January 1, 1999, earmarked payroll contributions are the main sources of health sector funding. Employers and employees pay 14 percent payroll tax (7 percent from employers and 7 percent from employees). The self-employed, farmers, pensioners, and the unemployed pay a 7 percent income tax to fund health insurance. The new funding system was phased in 1998, when employers and employees paid a 5 percent payroll tax and pensioners contributed 4 percent of their pensions. Those contributions did not affect net income by much, because they were deducted after pensions and benefits increased by 4 percent. * Health insurance will fund ambulatory, inpatient, and dental care, including clinical preventive services and drugs. * The state budget will retain responsibility for funding public health services and capital investments, as well as high-priority national health programs.

3Implementation of the law and establishment of the College of Physicians were on hold until 1997 because of disagreements between the Ministry of Health and the physicians trade union. 11 * Funds will be administrated by one autonomous health insurance house in each district and a national health insurance house. The health insurance houses will be run by boards of directors. Initially, appointments to the boards will be based on nominations from employers, trade unions, and the government of Romania. Beginning in 2002 the boards will be elected by insured persons and employers. * A framework contract, agreed upon by the national insurance house and the College of Physicians and approved by the Cabinet, will define the benefits package, conditions for service delivery, and payment mechanisms. * District health insurance houses will contract services from public and private providers. * Insurees will choose physicians in ambulatory care. Family physicians will play a gatekeeper role. * Payment for services will shift away from funding based on input costs. The law broadly defines per capita and fee-for-service payments for primary and ambulatory specialist care and per case and per day payments for hospital care. * Copayments are required for drugs and allowed for other services. * Fixed percentages of funds collected will be allocated to certain activities. According to the law, 25 percent of funds must be set aside for redistribution among districts (the figure is subject to revision by Parliament); 20 percent of all funds in 1998 and 5 percent thereafter will have to be set aside as reserves. No more than 5 percent of funding can be spent on administrative costs. * The Ministry of Finance, Ministry of Health, and district health authorities act as insurance bodies during the transitional year 1998 (the transition period was extended until the end of March 1999 by Ordinance Number 125/98).

2.21. The Health Insurance Law will affect revenue generation, equity and distribution of resources among districts, management of funds and efficiency. Each of these areas is examined below.

2.22. Revenue generation. According to estimates and projections made by the Health Finance Study in the first half of 1998, state budget and insurance funds were expected to generate total revenues of 12,500 billion lei (US$1.4 billion) in 1998 (AHIC 1998). Had revenues been this high, they would have exceeded estimated total public expenditure by about 10 percent in 1998, with health insurance accounting for about 70 percent of public resources for health sector. Estimates of expenditures were based on trends in population, service use, and inflation, without factoring in any increase in real term of labor costs or abrupt change in service use that could be caused by major change of payment mechanism and broad entitlements.

2.23. Actual health insurance collection figures for 1998 amounted to just 87 percent of forecasted revenues as a result of lower than expected compliance. As a result, most of the reserve fund (set at 20 percent of revenues for 1998) was used to cover 1998 health services expenditure. Those funds had been intended to have been used as start-up capital for the insurance houses in early 1999. Poor compliance raises questions about the effectiveness of the collection system.

2.24. Increasing the health insurance levy from 10 percent in 1998 to 14 percent in 1999, and reducing mandatory reserves from 5 percent to 20 percent were projected to increase public funds for the health sector by almost 40 percent in real terms, raising total spending on health from 4 percent of GDP (of which 1.2 percent is private spending) in 1996 and 1997 to 5.5 percent in 1999. Even if limited collection capacity and lower than expected compliance reduce the revenue projection, resources will rise significantly. The current lack of plans for managing this sudden increase in revenues could result in wasteful spending.

12 Table 2.6. Estimated public sector health revenues and expenditures, 1997-99 (billionsof lei, exceptas otherwiseindicated)

Item 97 19" l 1999

Public expenditure on health 6,959 I 1,363 11,363 services GDP 249,750 414,500 414,500 Revenues from state budget 6,959 3,572 3,572 Revenues from health insurance, _ 8,932 14,195 after providing for reserves Total revenues 6,959 12,504 17,767 Total revenues as percent of GDP 2.8 3.0 4.3 Note: 1999data are in 1998prices. Source: AustralianHealth Insurance Commission 1998.

2.25. Equity and resource allocation. Under the 1997 law 7 percent of revenues were to be reallocated in order to improve equity across districts. Reallocating these funds away from districts with high levels of per capita health care revenues toward areas with low levels of revenues would have resulted in a range of per capita revenues for expenditures on health care of between 85 percent and 129 percent of the national average, with Bucharest as an outlier at 167 percent.4

2.26. Redistribution of about 22 percent of revenues would ensure that health care revenues in all districts was at least 95 percent of the national average. Even greater equity could be achieved by redistributing 25 percent of revenue, as provided under the Ordinance Number 30/98 amending the 1997 law. At the time of writing, however, there is some prospect that Parliament may reduce the level of redistribution permitted by the law to some intermediate level.

2.27. Management offunds and efficiency. There is great need in Romania to introduce proper incentives to ensure appropriate management of funds and improve efficiency in the health system. Incentives to improve performance at the service delivery level and promote an expansion of the role of the private sector are critical. Improved efficiency will also require incentives that allow for greater autonomy, and financial risk, for districts and health care facilities, as well ensure increased responsiveness to patients needs, all of which are poorly developed and/or badly managed under the current system. (These issues are examined in greater detail in Section 3.)

C. HEALTH FINANCE REFORM

Strategic Objectives

2.28. The objective of health finance reform is to establish a health finance regime that is able to pay for priority health care and is sustainable, more predictable, equitable, and gives better value for money than the current system does.

Interventions

2.29. The government of Romania has, wisely, postponed requirements for election of administrative boards at the district level. In the interim the role of district health insurance houses might be limited, through

4Annex 3, basedon AHIC's1998 findings, details the relationship between an indexof needand estimates of revenues per capital at thedistrict level after redistribution of the7 percentallowed by the currentprovisions of theHealth Insurance Law. Those findings reveala negativecorrelation (r = -0.30)between revenues and the indexof need.

13 provisions of the Statutes of the National Health Insurance House, mainly to contracting services according to nationally defined criteria, documenting contributions, and providing updates to the National Health Insurance House. Democratization of the system is a legitimate goal. However, the election of representative groups and administrative boards, which would begin in 2002, would be costly and could introduce needless partisan interests that could distort development of the evenhanded policies needed to implement the insurance program successfully.

2.30. According to the current law, beginning in 2002 district health insurance houses will be autonomous and operate with locally elected boards. The law should be amended to provide unambiguously for one National Health Insurance House with 41 district branches (or fewer if political constraints permit) in place of the multiple autonomous district funds. Changing the law would increase significantly the likelihood of successful implementation by simplifying the overly complex design and reducing the level of effort required to make it work. It would also help ensure a single, unfragmented risk pool.

2.31. Establishing a National Health Insurance House with multiple branches is compatible with the retention at the district level of a certain percentage of revenues generated in each district. Allowing districts to retain some revenues would serve as an incentive to revenue collection and the efficient utilization of funds in the districts.

2.32. Measures to establish and develop the National Health Insurance House as an autonomous public institution should be accelerated, with appropriate checks and balances put in place to protect the interests of the insured population and ensure effective use of resources and financial control. The National Health Insurance House Board-appointed from nominees put forth by the President; Prime Minister; Ministries of Health, Finance, and Labor; employers; and trade unions-should not include members with conflicting interests (such as health care unit staff or owners or health administration officials). Executive staff of the health insurance houses should be recruited through open competition based on professional expertise, and they should be offered specific training and continuing education. Other early steps required include clarification of the roles, duties, and skill requirements of board members and health insurance house managers; definition of boundaries regarding the roles and discretion of the local and national health insurance houses; and development of regulations governing the functions, operating procedures, and reporting requirements of the health insurance houses.

2.33. Financing the health sector should be based on a three-year plan rather than the annual plan implicitly built into the current budget cycle. Adopting a longer budgeting cycle would provide stability for planning how best to live within limited resources. Multiyear budgeting would also send clearer messages to provider units regarding adjustment of capacity, structure, and supplied services.

2.34. The approach developed by the Health Sector Financing study should be institutionalized to ensure that the Romania Health Sector Finance Model is used by national and local government officials and administrators of the health insurance fund. To improve the availability of data needed for sound financial planning, the National Health Insurance House, in consultation with the Ministry of Health, the National Center for Health Statistics, the Ministry of Finance, and the National Commission for Statistics, should develop standards for classifying services and costs. Uniform and consistent definitions, developed with assistance of financing and health services management experts, would allow analyses of performance of comparable cost, service use, and policy options to be carried out. It would also help ensure that policymakers, analysts, and consultants are talking about the same issues.

2.35. In order to ensure the efficient use of funds and avoid serious implementation problems, the framework contract between payers and providers needs to be reviewed. The government has already made a great deal of progress in preparing a framework contract that sets out the terms under which districts will pay providers in 1998 and 1999. That agreement largely retains the status quo for payment of institutional providers. It will be important to strengthen national capacity to oversee implementation of changes to contractual arrangements for providers. It is desirable for the Ministry of Health and the National Health

14 Insurance House to take a phased approach to changes to provider payment arrangements and service delivery, testing new approaches with pilots. The process should be based on a realistic assessment of local management capacity and with the appropriate tools to enable it to work well.

2.36. To ensure that the financing of basic health services is equitable, it is essential that the government reexamines the financing process and defines the formula for redistributing revenues across districts. The government should define a nationally acceptable range of variation in per capita revenues among districts, establish a timeframe for reaching that objective, and make explicit legal provisions for achieving it. The redistribution formula would be reviewed periodically. The fact that poorer districts generally have poorer health status (and therefore greater health care needs) must be taken into account in designing the formula. Absolute equalization among districts is not desirable because of the very high redistribution levy (of more than 40 percent) that would be needed to achieve it. Some revision of the redistribution levy may make sense, however, in light of the findings of studies completed in 1998 and the level of revenue collected in 1998.

2.37. The implementation process should be accompanied by a carefully planned and well-targeted public information campaign to ensure that citizens understand their rights, responsibilities, benefits, and limitations under the reformed health system.

15 III. HEALTH PROBLEMS AND HEALTH SERVICES

A. MISMATCHBETWEEN NEEDS AND SERVICES

3.1. As in many formerly socialist economies of Central and Eastern Europe, health care services in Romania are poorly matched with health care needs. The legacy of the former regime is a health care systeni that focuses on inpatient, curative interventions rather than on integrated delivery of preventive, curative, and rehabilitative services. In order to use its resources efficiently and have the greatest impact on health status, Romania needs to better match its disease burden with appropriate cost-effective interventions.

Issues

3.2. Life expectancy. Health status in Romania is among the worst in Europe. Life expectancy among males wavered around 1960 levels for years before falling in the early 1990s (Table 3.1). Life expectancy of females increased steadily between 1960 and 1994, but aging women in Romania tend to suffer from more chronic conditions than men, and they are more likely than men to live in poverty (UNICEF 1998)5

Table 3.1. Average life expectancy at birth by sex in Romania, 1964-1994

1964-67 66.45 70.51 1972-74 66.83 71.29 1978-80 66.68 71.75 1982-84 66.98 72.61 1988-90 66.56 72.65 1992-94 65.88 73.32 Source:Ministry of Health1996.

3.3. Infant mortality. Infant mortality rate in Romania fell from 26.9 per 1,000 live births in 1990 to 22.3 per 1,000 live births in 1993. The rate remains very high by international standards, however (UNICEF 1998) and more than twice as high as in Poland (12.2 per 1,000) or Hungary (10.9 per 1,000). The incidence of low birth weight is reportedly on the rise, and the number of pediatric AIDS cases is the highest in Europe.

3.4. Maternal mortality. Despite significant improvements since 1990, when abortion was legalized, the maternal mortality ratio (the number of maternal deaths per 100,000 live births) remains much higher in Romania than in other Central or Eastern European countries (table 3.2). Maternal mortality ratios are similar to those in Azerbaijan and Moldova.

5 The Romania Poverty and Social Policy Study (Report No. 16462-RO, of April 1997) found that among pensioners in Romania, the poorest are households headed by women living in rural areas, receiving low agricultural or survivor pensions. Elderly rural women with only farm income and no pension are even more vulnerable to poverty.

16 Table 3.2. Maternal mortality ratios in selected countries, 1996 (deathsper 100,000live births)

Country Maternal mortality ratio Azerbaijan 44.1 Hungary 11.4 Moldova 40.5 Poland 4.9 Romania 41.1 Source: UNICEF1998.

3.5. Family planning. The low rate of contraceptive use in Romania reflects the legacy of the previous regime's policy of encouraging population growth. Only 57 percent of women currently in union report using any contraceptive method, according to the 1993 Reproductive Health Survey. Of those using contraception only 14 percent reported using modern methods.

3.6. The continuing unmet need for family planning education and alternatives is reflected in Romania's high abortion to birth ratio in 1996: for every 100 live births, 197-230 abortions are performed in Romania (UNICEF 1998). These statistics, which are based on hospital registration data, probably underreport the actual rate of abortions, many of which are performed in the private sector, clandestinely by lay people, or are self-induced.

3.7. Lifestyle and the burden of disease. Measured in Disability Adjusted Life Years (DALY), a large proportion of the health conditions that result in the greatest loss of healthy life due to premature morbidity and mortality in Romania is attributable to lifestyles, particularly tobacco consumption, alcohol abuse, and poor dietary habits. Figure 3.1 below shows that in terms of percentage of DALYs lost to major disease classifications, 30 percent are heart-related, another 14 percent are related to cerebrovascular conditions, and 11 percent are related to tumors or cancer of various types, especially lung, stomach, colon, breast, and prostate. Of the 10 top causes of DALY loss, more than 50 percent are attributable to conditions related to the heart and circulatory system (primarily cerebrovascular disease and ischemic heart disease); 25 percent are attributable to alcohol-associated mental disorders, cirrhosis, and chronic hepatitis. Public advertising of cigarettes has increased in recent years, and anecdotal evidence suggests increased smoking prevalence, particularly among women. As concerns infectious diseases, tuberculosis incidence and prevalence have increased over the past decade.

3.8. High-demand services. Cerebrovascular diseases, alcoholism, chronic ischemic heart disease, and hypertension account for many of the most demanded hospital services in Romania. Abortion also ranks high, reflecting the large unmet need for family planning alternatives as mentioned above, and the failure to fully integrate family planning and sex education into the primary health care network. With more appropriate clinical and preventive interventions, significant headway could be made in reducing demand for these types of services and better addressing the principal causes of the disease burden in Romania.

17 Figure 3.1. Burden of disease, disability, and premature death in Romania

Obst/Peri/Congen 2% Inf/paras Genitor-Urinary 2% 2% Hemat./Nutr 3% Neurological Heart-Related 4% 30% _ ]-Gastro-Intestinal 5% i Respiratory 6%

Other

Cerebrovascular 14% Alcohol-related Tumors 10% 11%1

3.9. Overemphasis on inpatient medical care. Many conditions typically treated in ambulatory settings in other parts of the world continue to be treated largely on an inpatient basis in Romania. This trend reflects the overly medicalized and cure-focused legacy of the medical tradition under the socialist regime. Health care providers other than medical doctors (such as physicians assistants and nurses) are underutilized.

Strategic Objectives

3.10. Realigning health services and orientating health care in Romania to better target those conditions that cause the greatest disease burden in a cost-effective manner are key to the sustainability of health sector reform. Such a realignment would improve health status of the population and ensure a more efficient use of limited public resources.

3.11. In a transition economy, access to most health care services is perceived to be free and the population expects to continue to receive free health services. Given these expectations, there may be considerable political and social impact of explicitly identifying the very limited list of services to which access would continue to be free under a prioritized health care system. The approach suggested for Romania is one that is both pragmatic and sensitive to local expectations. The proposed operational framework for prioritization takes into account the need to directly address the main causes of Romania's disease burden, identify cost- effective interventions, determine the best treatment setting for cost-effective care, and identify current consumer demand for various services. Some services, such as those for treatment of infectious disease, would be included in any essential service package. Before full or partial reimbursement of other health care services is approved, it will be important to for policymakers to review and consider the framework described in table 3.3, and the tradeoffs inherent in prioritizing services.

18 Table 3.3. Framework for health services coverage in Romania

Diseasecategory Coveredexpenses Justification Financialincentive

Chronic disease Outpatient and High burden of disease; In cases of noncompliance inpatient care (except moderate cost- resulting in hospitalization or drug copayments) effectiveness (higher in self-referral to hospital, outpatient setting) copayment from patient required (discounted for patients adhering to outpatient treatments) Accidents, injuries, Small copayment for Mild to moderate None and simple surgery drugs and ancillary burden of disease; services acceptable cost- effectiveness

Specialist care for high Copayment on surgery High demand, high Waiting lists, constant burden of disease and hospitalization burden of disease; low spending levels for certain interventions (such as to moderate cost- specialist care coronary bypass effectiveness surgery)

Public health care Small or no Fairly high burden of Mild incentive to providers (such as family copayment disease; high cost- of family planning services . planning) effectiveness (less expensive than abortion)

Specialist care for low Copayment on surgery High demand, low None burden of disease and hospitalization burden of disease; interventions (such as medium to high cost- valve replacement) effectiveness

Behavioral counseling No copayment High burden of disease; Possible exemptions on (such as smoking (possible exceptions moderate cost- value-added tax for products cessation) for nicotine patches, effectiveness; low such as nicotine gum or for which small consumer demand patches Availability of these copayment could be products without a required) prescription. Specialist care for low No coverage None burden of disease type and cost-ineffective interventions (such as AZT for treatment of AIDS)

3.12 No methodology for prioritizing health services is without problems. In meeting the objective of better aligning health problems and health services, however, the more pragmatic and context-sensitive approach described here provides a clear rationale for policymaking. It also allows policymakers greater flexibility in tailoring priority health services to meet the health needs of the population more cost-effectively. To encourage patients to choose outpatient care, incentives-such as copayments for inpatient treatment necessitated by lack of patient compliance with the prescribed regimen or patient self-referrals to hospitals- need to be put in place. Providers also need to be presented with financial incentives for choosing outpatient care.

19 Interventions

3.13. The use of epidemiological and economic tools to define priorities differs from the traditional specification of a package of essential health services. From a social and political perspective, the public is highly unlikely to give up what it has theoretically been entitled to free of charge. Implementation of a system emphasizing health gains through cost-effective services would thus not be facilitated by a mechanistic definition of covered and noncovered services. Instead, management tools and incentives could be used to influence the behavior of service providers and consumers. Such tools and incentives would encourage the delivery and use of more cost-effective services through the use of epidemiological information, data on cost- effectiveness, health technology assessment, business planning, the refinement and use of essential drug lists, the rational use of drugs, targeted interventions, and introduction of formal copayments where appropriate.

3.14 Key to the application of any prioritization methodology is a group of professionals trained in its application. A critical intervention is, therefore, the training of health policy professionals in the Ministry of Health and its associated institutions in the development and application of burden of disease and cost- effectiveness methodology. Such methodology should be applied on an ongoing basis, continuously adapting to changes in health priorities, resource levels, and the structure and content of provider and consumer incentives.

3.15. The outcomes of this first burden of disease analysis in Romania indicate a need for clinical preventive services and for much improved coordination of these services with health promotion and education activities. Any selection of health interventions must be supported by appropriate incentives for providers and consumers structured to address the major causes of Romania's disease burden, motivate providers to choose cost-effective services in treating their patients, and provide more care in outpatient settings. Negative incentives should be introduced for conditions that constitute a small proportion of Romania's burden of disease and are not cost-effective.

Box3.1. Settingpriorities for publichealth and diseasecontrol

There is a need to developand implementa nationalhealth promotionprogram with a strong institutionalbasis. Such a programcould includelegislative and regulatorychanges, policy-based interventions for the controlof noncommunicablediseases, and population-basedpreventive services. Interventions could promote: * Tobaccocontrol . Reproductivehealth . HIV and other sexuallytransmitted diseases control . Healthyschools . High bloodpressure reduction * Safe driving . Noncommunicabledisease control * Tuberculosisprevention and control

Policyand institutionalsupport couldbe providedthrough the following: . A policypaper on health promotionand disease . Management,coordination, and evaluation • Training,partnerships, and capacitybuilding • Establishmentof an open and competitivehealth promotion initiatives grants program

B. ORGANIZATIONAND MANAGEMENT OF HEALTHSERVICES

3.16. The main constraints on effective organization and management of health services in Romania are overcentralization and the lack of responsiveness to local initiatives; the minimal involvement of the legal private sector; the overemphasis on inpatient care and underdevelopment of outpatient, nursing home, and home care; the segmentation of the care provided (as a result of lack of systems and managerial tools to establish a continuum of care); the widespread practice of illegal-and regressive- payments, reinforcing the 20 inequity in access to basic services; and the unregulated expansion of private for-profit health care providers. As households become wealthier, they bypass the public health system altogether and seek care from private providers, legal or illegal. Their choice reflects their perception that private health care is of superior quality as well as their willingness and ability to pay for services (World Bank 1997b).

Strategic Objectives

3.17. The general objective is to increase the efficiency and the quality of service delivery. More specifically, reform of organization and management aims to strengthen managerial capacity and management support systems, increase the responsiveness of services to health problems and local needs, foster the development of private for-profit and not-for-profit providers of care, promote the development of more cost- effective approaches to service delivery, and increase access to basic health care services by poorer population groups.

Interventions

3.18. There is a need to develop integrated health services that emphasize primary health care and preventive services and target the poor. Shifting the emphasis away from curative, inpatient interventions would have financial, efficiency, and equity benefits.

3.19. Building management capacity and support systems for the desired reform is critical to its success. Skills in medical practice management, contracting, decisionmaking, leadership, and contract negotiation need to be developed.

Box3.2. Changesin the providerremuneration system: Contractsas tools

Effectivechanges in providerpayment systems require effective contracting. Contracting is not an end in itselfbut a meansby whichthe partiescan make clearexpectations, rights, and responsibilitiesand formalizethe agreement. The currentlaws and "frameworkcontract" have limitedutility due to incoherenceand the high administrativecosts of implementationof the proposedrelationships. The following are milestonesfor successfulcontracting:

. Clarifywho the Purchaserand Providerare and what their respectivepowers are. . Agree on the type of contractsto be used and the servicesto which they areto be applied. . Agree on a definitionfor the activityvolume measure to be used in contracts. . Developa protocolto be usednationally for the analysisof activityin the agreedupon measure. . Developa protocolto be usednationally for the costingof contracts. . Developa seriesof minimumquality standards to be includedin contracts. . Implementthree or four pilot projectsto develop,test, and evaluatethe above. * Test to ensurethat adequatesystems of monitoringare in placeso that contractvariations can be resolved. * Agree on a roll-outprogram.

3.20. The transition to decentralized service delivery would start at the local level and be supported by adequate human and material resources. The creation of a Health System Innovation Fund could help build capacity in areas where new ideas are already being tested. The Fund would support local initiatives and self- organized teams through technical assistance, management development training, and capital investments. Supporting self-organized teams in structuring innovation processes could enable further dissemination of ideas and tools to other pilot or demonstration sites. Grants, revolving funds, government loan guarantees, or loan guarantee funds are among the possible mechanisms through which innovation within the health care system could be supported and enhanced. Decentralization would also require a stronger, better-focused, and more effective Ministry of Health and a clearer legal and regulatory framework for contracting, cost control, and financial autonomy.

21 3.21. A new role for the Ministry of Health would be the regulation of Romania's emerging private healthb sector. Some doctors already operate private medical practices, and in Bucharest a few multispecialty private clinics have been established. The private sector can play an important role in supporting and supplementing services provided by the public health sector. The two sectors can interface in various ways:

* Outsourcing of services. As public hospitals begin to bear responsibility for their performance they could contract with private companies for support services, such as catering, housekeeping, laundry, security, equipment, and plant and grounds maintenance. * Creation ofprivate clinical services in publicfacilities. Private investors could provide specialized medical services within public hospitals. Two examples of such arrangements are already in operation in Bucharest. * Use ofprivate management at public facilities. Public facilities could be managed by private companies. Private management companies typically provide a small team of professional managers (a chief executive officer, a chief financial officer, and a chief nurse) plus part-time medical and technical experts to set up and monitor various clinical and support services. * Establishment ofprivate outpatient clinics. A number of multispecialty private clinics have been established in Bucharest. Most of these clinics employ doctors who are also employed in public facilities. * Establishment ofprivate hospitals. While no private hospitals have yet been established in Romania, a number of investors are considering launching such projects. NGOs may play an increasingly important role as health service providers, particularly in community care services. * Use ofprivate commercial health insurancefor coverage of services not covered by national health insurance. Private commercial health insurance is minuscule. It is focused on persons travelling abroad who need insurance policies to obtain visas for certain countries. Allowing individuals to opt out of the national social insurance system by purchasing commercial insurance would increase inequity. Commercial health insurance could be made available, however, for services that are not covered by the national health insurance system, as it is in Western Europe and Canada.

3.22. Integrated services could be developed to improve performance at the local and district levels. Integration of services would represent a major shift within the organization culture of the system and would require considerable investment in appropriate tools (such as modem practice guidelines with a shift toward outpatient and community-based care), skills, and processes for its implementation. The development of a wider range of providers and communication networks between providers, the creation of provider networks in time, and the use of incentives to improve performance require a more careful design of the provider payments arrangements than is evident in the current drafts of the framework contract.

3.23. A pragmatic approach to the problem of under-the-table payments needs to be taken. Exhortations alone will not be effective. Instead, policymakers should focus on improving the quality of care (facilities, processes, and communication with patients); establishing a clear schedule of required copayments; increasing remuneration for service providers in order to reduce their need to receive under-the-table payments; disseminating public information on patient rights; and formulating and enforcing penalties for providers who do not heed new practice regulations. These changes will be only partially effective, however, as long as the society as a whole continues to tolerate illegal payments.

22 C. RATIONALIZATION OF PHYSICAL ASSETS

Issues

3.24. Even if adequate management capacity were available in Romania, the present structure and organization of health care institutions would not be conducive to an efficient use of physical resources. Ambulatory care and polyclinics in Romania are often physically and functionally separate from hospitals; too many specialized hospitals (oncology, obstetrics-gynecology, psychiatric) exist; health care programs run by the Ministry of Health overlap with other programs at all levels; and patients enter the service delivery system at any point. In addition, a splintered and overspecialized delivery structure has resulted in a system with more than 100 categories of providers. A more rational classification (such as that shown in table 3.4) would reduce the number of categories to 10 or fewer.

Table 3.4. Number of beds, by type of health care facility, 1998

Town hospitals 250 66,485 District hospitals 40 50,201 Municipal hospitals 38 22,035 Teaching hospitals 27 13,984 Creches/ orphanages 603a 10,620 Rural hospitals 57 10,169 Sanatoria 77 - 6,883 Army 31c 5,180 Institutes 13 4,889 Dispensaries/polyclinics 110 2,667 Total 1,246 193,113 a. Includes 545 outpatient and 58 inpatient facilities. b. Includes 43 outpatient and 34 inpatient facilities. c. Includes 19 outpatient and 12 inpatient facilities. Source: Ministry of Health.

3.25. Number of beds and regional distribution. Romania has about 193,000 beds, or 8.6 beds per l,000 population. The number of beds ranges from 6.9 per 1,000 in the South to 10.5 per 1,000 in the West and in Bucharest (table 3.5). The average hospital is large, with 300 beds.

6 This topic is dealt with at length in "Rationalization of Physical Assets," Addendum to Romania Health Sector Reform, Final Report, InterHealth Institute1998.

23 Table 3.5. Number of beds by type of provider and region (1998)

East West East Weist< t T

Population in 2,305 2,661 3,785 2,861 4,006 2,435 2,420 2,074 22,547 thousands Army 1,650 660 350 830 240 850 300 300 5,180

Creches and 794 1,243 2,326 1,730 1,367 1,040 1,165 955 10,620 Orphanages Teaching 13,984 ------13,984 facilities District - 6,946 8,087 7,747 8,227 6,306 7,978 4,910 50,201 hospitals Dispensaries - 194 447 323 647 288 543 225 2667 and polyclinics Institutes 4,187 - - 702 - - - - 702

Municipal - 2,842 5,717 3,050 3,031 2,678 - 4,717 4,717 hospitals I Rural hospitals - 773 2,005 548 3,509 451 790 2,093 10,169

Sanatoria - 792 946 460 2,380 1,260 505 540 6,883

Town hospitals 3,600 10,557 11,427 1,1251 8,126 6,405 7,049 8,070 66,485

Total number of 3,600 14,964 20,095 24,081 17,046 10,794 8,344 15,420 114,344 beds Beds per 1,000 10.5 9.0 8.3 9.3 6.9 7.9 7.6 10.5 8.6 persons l l_l_I_l - Not available Source: Ministry of Health.

3.26. Structural andfunctional evaluation of buildings and equipment. Most buildings in Romania cannot support a modern, function-based health service delivery system. Some buildings are old. Others have been built recently but reflect inadequate standards, poor workmanship, low-quality materials, and lack of maintenance. Biomedical equipment is often unavailable, old, out-of-date, or broken. Recently procured or donated equipment is underused because of lack of supplies, spare parts, maintenance, or space. Even basic features, such as heating, running water, electricity, and telephone lines, are often lacking.

3.27. Estimated cost of upgrading buildings and equipment. In the absence of a carefully phased approach and the closure of some facilities, the cost of upgrading and maintaining all buildings and equipment would be unsustainably high. Half of the beds at district, municipal, rural, and town hospitals could be renovated at a cost of about US$882 million.7 Upgrading biomedical equipment servicing 70,000 beds would cost about US$1.75 billion (US$25,000 per bed). These extremely high cost estimates do not include operating costs, which run about US$600 million a year in Romania. Increasing or decreasing the number of hospital beds to be renovated and reducing the equipment cost per hospital bed would yield between US$980 million and US$2.275 billion.

7The cost of renovating and upgrading is assumed to be 30 percent of the cost of new construction, which is estimated to be $42,000 per bed ($600 per square meter times 70 square meters per bed).

24 Strategic Objectives

3.28. The objective of upgrading Romania's physical health care infrastructure is to realign infrastructure to facilitate delivery of appropriate and better-targeted health services to meet the population's health care needs. To achieve this objective, selective upgrading of the health care infrastructure will be necessary. Development of a feasible and effective system for maintaining infrastructure in the future is key to the sustainability of any investments in upgrading and restructuring.

Interventions

3.29. Investment policies, coordinated with regulatory and financial measures, would encourage a gradual shift in emphasis away from inpatient care toward outpatient/ambulatory and day care. Such a reorientation would gradually lower inpatient care costs by reducing the number of admissions and the average length of stay.

3.30. Reductions in inpatient service volume would be followed by closure and/or reduction in the size of redundant facilities and the review and restructuring of staff employed by those facilities. In carrying out such an exercise, care must be taken to ensure that the principles of quality of care and access to needed services are protected. In addition, reduction in the number of beds in remaining health care facilities should be linked to the release of resources for creating and operating day surgery centers for minor surgical and other treatment procedures, to the transformation of polyclinics into multidisciplinary group practices with complete diagnostic and treatment problem solving capability, and to creation of long-term care alternatives for chronic, rehabilitating, terminal, and residential care patients currently occupying acute care hospital beds.

3.31. Development of the regulatory and policy role of the Ministry of Health could include establishment of a planning and licensing function for inpatient facilities, high-cost equipment, and services. At a minimum, all facilities receiving public funds and providing services subject to the planning exercise should be subject to licensing arrangements.

3.32. Modernizing Romania's health services infrastructure will require massive financial investment by the Ministry of Health, which retains responsibility for financing capital improvements. Given the tremendous need and limited funds available in Romania, the greatest challenge will be to leverage state funds to attract additional capital into the health sector. The Ministry of Health could do so through four different mechanisms:

Option 1: Capital improvement grants. Each year the Ministry of Health could designate a portion of the state's health budget for capital improvements. Option 2: Revolvingfund The Ministry of Health could lend money, at favorable interest rates, to provider institutions at all levels of the health system to support capital improvement projects. The borrower would repay the loan from its revenues, allowing the revolving fund to extend loans to additional providers. Option 3: Government loan guarantees. The govemment could guarantee capital improvement loans, at subsidized interest rates, provided by private or independent lending agencies, such as commercial banks. Option 4: Loan guarantee fund The government could create a fund to provide tangible security to potential lenders extending credit to borrowers under a government loan guarantee program.

3.33. Because all funds would come from the Ministry of Health under the first option, only a few projects could be supported each year. Options 2, 3, and 4 transfer responsibility for capital improvements from the Ministry of Health to providers. Under all of these options, individual providers would obtain the capital

25 financing they needed to meet their service goals, repaying their loans out of revenues earned from user fees and copayments. Generating sufficient revenues could be problematic in the short term.

3.34. Under Option 2 the number of projects would be larger than under option 1. Project financing would still be limited by the size of the revolving fund and the loan repayment schedule, however. Creating a loan guarantee program, as in Options 3 and 4, leverages state funds to attract additional capital from the broader financial market and allows a larger number of projects to be funded concurrently. Interest rates could be subsidized to encourage investments in underserved areas or adjusted upward to discourage duplication. Relying on government guarantees to attract private investment, as in Option 3, is problematic, however. Private lenders are likely to be hesitant about extending credit based on government guarantees alone, at least at favorable interest rates. A loan guarantee fund (Option 4), in which monies are set aside, provides more security to investors. Romania's financial markets are still developing and it would be difficult to find qualified commercial lenders interested in offering loans to the health sector. Initially, the most attractive loans would be for major medical equipment, especially equipment that has the potential to generate revenue. Later, loans for limited remodeling projects would be considered. As lenders gained experience in dealing with the health sector, they would be willing to consider loans for more extensive remodeling and construction projects.

3.35. In spite of Romania's weak financial markets, a loan guarantee fund has the greatest potential for financing capital improvements over the long term. Such a fund could be financed at a level of US$70- US$100 million, with donors and the government each contributing half of the fund's initial capitalization. Over time, as the donor loan is repaid, the fund would be financed entirely by the government. Until a loan guarantee program is established, the National Health Innovation Fund could provide loans for a few capital projects as part of local program initiatives.

D. RATIONALIZATIONOF HUMAN ASSETS

Issues

3.36. Romania lacks a health care workforce that is appropriately trained, deployed, and motivated. There is a need for a workforce with new competencies and capacities in sector leadership, needs assessment, policy development, and evaluation in the Ministry of Health and the Ministry of Education. The Ministry of Health's human resource department is already attempting to manage the current system and participate in planning for the future-a daunting responsibility for a department with limited technical and financial resources. Misunderstanding among health professionals about the role of the Ministry of Education prevails, and inadequate and difficult communications are evident. The Ministry of Education's role in professional education requires competency in the professions, familiarity with curricula in Western Europe, and more effective communications with both educators and the practice community, particularly as the professional organizations assume more independent responsibility for ensuring practitioner competence. For example, the College of Physicians has been developing its role in the field of continuing education, granted by legal provisions in 1995, defining criteria related to participation in continuing education programs and the requirements for periodic re-licensing of physicians. It is also building an information system for registering physicians. Support and collaboration among all these actors are weak, however.

3.37. Data availability. Data on various aspects of the health services workforce in Romania and abroad are available from several sources, but the data have not been organized in a single database and there are gaps in data. Considerable confusion exists, for example, about European Union standards and practices throughout the region. To guide policy, government agencies must have ready access to comprehensive information on the health sector. Data need to be shared with professional organizations and academic institutions.

3.38. Accreditation standards. Accreditation is currently required only for medical faculties; professional education schools and programs need not be accredited. The National Council for Accreditation and Academic Evaluation depends directly on Parliament, whose expert committees, including the expert

26 committee on medical sciences, accredit institutions. There is no mechanism in the accreditation process for *representing the interests of other parties, including the general public, that have a stake in the quality of health professionals.

3.39. Continuing education. The continuing education of physicians is receiving attention from some professional organizations and the Ministry of Health. Continuing education is a priority need for physicians and for nurses practicing in hospitals and dispensaries. Although the need is recognized, implementation of extensive programs has been slow. Because the cost of attending continuous education is high in comparison with labor costs, managers regard such programs as luxuries and are reluctant to allow their staffs to participate.

3.40. Physicians. The medical profession has a long and well-established scientific tradition and much to be proud of, particularly in light of decades of isolation and very limited resources. In spite of adverse working conditions and low pay, many Romanian doctors maintain the best traditions of the profession, and there has been progress in making up for the lost years. Academic medicine in the specialties is particularly strong. Serious structural and qualitative problems exist, however, all of which are recognized by health policy leaders both within and outside of the government.

3.41. The supply of physicians is adequate, but the specialty distribution is not appropriate to the needs of the country and the emerging insurance-based health care system, which requires a strong family medicine network. Incentives that could ameliorate problems are not in place.

3.42. Romania has an adequate ratio of physicians to population (17.7 per 10,000 persons since 1985). The recent increase in private medical schools threatens to increase the ratio of physicians in the population.

3.43. The geographic distribution of physicians is uneven. In the western districts 28 physicians serve every 10,000 persons; in the eastern and northern districts the figure is as low as 9 physicians per 10,000 persons. The distribution of general practitioners is even more unequal, with some districts having four times as many general practitioners per capita as others. This uneven distribution of general practitioners is of particular concern given the key role of family medicine in the implementation of the health insurance system.

3.44. General practitioners in all settings have inadequate training, equipment, and supplies to meet the primary care needs of the public. District general practitioners provide services after only one year of postmedical school training-well below European standards in terms of both the length and content of training. There is a high-priority need to improve the care provided by general practitioners through continuing medical education, retraining programs, and upgrading of facilities and equipment. The process of creating a family medicine teaching capacity in some medical schools has begun on a small scale. The program should be expanded in the next year or two if it is to respond to the country's needs.

3.45. Nurses and allied health care professionals. For the most part, the skills of other health workers in Romania do not meet European Union standards, and they are inadequate to meet Romania's health care needs. Without sufficient numbers of competent professional nurses and diagnostic technicians, Romania cannot reach the international standard of quality its doctors are able to attain. The rational use of limited national health resources would reduce the inappropriate role of the hospital, increasing the proportion of truly sick patients in hospitals and enhancing the role of community-based ambulatory care. These trends would necessitate increasing the role and improving the skills of professional nurses. In the next few years, there will be a huge increase in advanced diagnostic and therapeutic technologies that require well-trained operators and maintenance skills. The lack of such personnel will be a significant barrier to achieving national health goals. The successful restructuring of the health care system requires clarification of the role and enhancement of the competence of nurses and other paramedical workers.

3.46. The basic education of nurses in the 60 state-run and 72 private schools varies too much across programs and is inadequate for the expanded scope of practice in primary care and community nursing that is

27 essential to the success of the new health system. New programs must be designed, accredited, and implemented in basic, continuing, and advanced education for nurses and other para-medical workers that emphasize home care, wellness promotion and disease prevention, and preparation for team practice with family physicians, general practitioners, and other health professionals. Training nurses in hospital nursing management and discharge planning is also a high priority.

3.47. A major obstacle to better nursing education is the lack of nurses qualified to teach in institutions of higher education. Currently, there is no system for providing the necessary clinical and academic education for nurse educators to meet that need. Although the Ministry of Education has the resources to provide such advanced training, there is an urgent need for the Ministry of Health to produce a faculty development plan.

3.48. Public health and health services administration. Since 1989 Romania has been the recipient of many consultant projects aimed at helping the country improve its health status and services. Policy development and the introduction of strategies to improve the management of resources have been a top priority, and there has been significant progress, particularly in the past two years. External consultants have provided competencies and knowledge needed to design health system reform and recommend strategies for change. Romania should not and cannot depend upon foreign experts to implement the system, however. In the long run, successful implementation of the reform of the health care system will depend on building up policy and management skills throughout the country at every level of service. Specific training strategies and resources are required to meet short-term and long-term needs. The most serious immediate need is to train district and National Health Insurance House management teams in the management and insurance skills necessary to get the system started. As soon as teams are hired, intensive short courses could be held for district health insurance house authorities, who would then train their administrative staffs. Hospital directors also need to be trained to operate in the new system and to master skills in accounting, information systems, contract negotiation, and delegation.

3.49. Only a few people in key positions have the knowledge and skills required to manage a modern health care system. Ministry of Health staff, managers and policymakers in hospitals and primary care systems, groups of physicians, district health authorities, district health insurance houses, and professional organizations require postgraduate training in public health, public health administration, and health services administration. They require the knowledge, skills, and attitudes that are learned in full-time masters degree programs and intensive short courses. Other countries in Europe recognize that a strong educational program must include competencies in management, economics, social sciences, and health sciences.

Strategic Objectives

3.50. The general objective is to rationalize the workforce in order to improve efficiency and outcomes. More specifically, the objectives are to:

* achieve European Union standards for education and practice of the health sector workforce * develop a workforce whose structure, knowledge, and skill mix are more in line with current health problems and cost-effective interventions * develop national capacity for training, accreditation, and continuing education of professionals * clearly define the role of, and training requirements for, nurses * establish family medicine as a central element of health care delivery.

28 Interventions

3.51. Training of all health care workers. A program to strengthen the human resources management and planning capacity and of the Ministry of Health is key to workforce development. A teaming agreement with the human resources department in another European ministry could be established. Such an arrangement could include short-term training of key staff, technical assistance, and observation visits by the director.

3.52. Specific professional competencies in medicine, nursing, and the allied health professions need to be established within the Ministry of Education. At least one person with medical education expertise and exposure to public health principles should be appointed to the Ministry of Education staff and given responsibility for collaborating and communicating with the Ministry of Health and the professions. In addition, formal structures and systems need to be designed through which the Ministry of Health and Ministry of Education communicate with one another and with professional associations.

3.53. The accreditation process would be strengthened by expanding the membership of the Expert Committee on Medical Sciences to include representatives of the College of Physicians, the Romanian Public Health Association, the National Society of General Practitioners, the National Health Insurance House, the district health authority, the university or general faculty association, and the public. A parallel expert committee on nursing, with similar representation, should also be established.

3.54. A national continuing education service that serves all the health professions could be established. This service could become the primary continuing education system in Romania by using interactive satellite television and receiving station discs to reach all of the hospitals in the country. The possibility of using Web- based conferencing technology, such as high-speed ground communication in metropolitan areas and satellite links in more isolated settings, could also be explored.

3.55. Development of professional associations and trade unions and strengthening of their respective roles in the policy formulation process would help ensure that key stakeholders remain actively involved. It would also ensure broad-based support for new ideas and new strategies.

3.56. Training offamily medicine specialists. Development of the role and status of the family medicine specialty is critical. Specific interventions could include the following:

= Establish a family medicine development organization charged with encouraging practice, education, and professional development of general practice, family medicine, and primary care. The organization could provide technical assistance, make small grants, and partner with donors for a period of five to seven years. * Establish departments of family medicine in four medical schools within the next five years, and team each school with a European counterpart for at least three years. * Establish a faculty development program that includes a year of training abroad and technical assistance from counterpart departments. * Establish model teaching practice sites at each of the four family medicine departments. * Designate family medicine teaching beds in hospitals not currently used for teaching

3.57. Training of nurses and allied health professionals. The roles and competencies of nurses and allied health professionals should be reviewed and appropriate education provided. Specific steps could include the following:

* Expand the availability of the WHO teaching resources and the number of faculty who are trained to implement it. * Develop a 1,500-hour advance management program to meet the need for administrative leadership in hospitals and community settings. 29 * Develop a program to develop faculty qualified to teach in and head nursing programs affiliated with universities. * Develop a program to develop faculty qualified to teach primary care, family medicine, and community health nursing. * Develop a program to enhance the skills and knowledge of union leadership.

3.58. Training of public health off cials and health administrators. A national school of public health and health services administration could be established.

E. PHARMACEUTICALS

3.59. A sensible approach to drug use is critical to health care reform because it contributes to better outcomes and efficiency. A national policy on drug use is thus an important part of a health sector reform program.

Issues

3.60. National drug policy. The government has issued a series of documents describing the Ministry of Health's objectives and guidelines on drug policy, but no comprehensive national drug policy exists. The lack of an overall vision for the pharmaceutical sector has led to conflicts between the health and commercial goals of the pharmaceutical sector. Similarly, the government has policies requiring firms to achieve good manufacturing practice standards by the year 2000-01, but it has given local firms little incentive to invest in quality assurance programs.

3.61. The focus of the list of reimbursable drugs has been primarily on the number of drugs rather than on an approach grounded in the epidemiological profile, therapeutic needs, and treatment protocols appropriate for the population. No national therapeutic guidelines exist for hospitals or ambulatory facilities, and no national formulary has been developed for use in hospitals. Lists of reimbursable drugs have often been put together without adequate consultation among stakeholders, resulting in frequent adoptions and rejections of lists. The College of Physicians, a key participant in the development of the drug lists, has commissions representing various specialties, but communication between these commissions or between the commissions and their respective parent association has reportedly been ineffective.

3.62. No national-level drug information system or database covers the public and private sectors in Romania. Such a system, linked to a system of national health accounts, is key to effectively formulating and implementing national health policy. Several ministries (Health, Finance, Interior, Labor) are currently involved, to varying extents, in the pharmaceutical sector, without effective mechanisms to ensure coordination.

3.63. Adherence to and respect for the laws governing the flow of pharmaceuticals in commerce is inadequate. Noncompliance has a corrosive effect that is often underestimated, but the current system lacks the financial and human resources to enforce compliance.

3.64. Expenditures on drugs. Total (public and private) spending on pharmaceuticals in Romania was about US$330 million (US$15 per capita) at retail prices in 1996 and US$402 million (US$18 per capita) in 1997 (AHIC 1998). Total government spending on pharmaceuticals rose from US$190 million in 1996 to US$217 million in 1997 in nominal terms, an increase of 14 percent. The figures are very low by regional standards. In 1995 per capita drug spending reached US$193 in the Czech Republic and US$152 in Hungary (OECD Health Database 1997). Less than 1 percent of Romania's GDP went toward spending on pharmaceuticals-a much lower figure than in neighboring countries (table 3.6).

30 Table 3.6. Spending on pharmaceuticals in selected countries, as percentage of GDP

Percent of GDP spent on Country pharmaceuticals

czech Republic 2.0 Hungary 1.9 Germany 1.3 United Kingdom 1.2 Romania <1.0 Note: Figures for the CzechRepublic, Hungary, and the UnitedKingdom are for 1995. Figuresfor Germanyand Romaniaare for 1996. Source: OECDHealth Database 1997.

3.65. Spending on drugs represented about 23 percent of Romania's health expenditures in 1996 (table 3.7). This is much lower than previous estimates of 40-50 percent (Goldstein and others 1996). Public spending on drugs represented 19 percent of public health spending in 1996; private spending on drugs represented 31 percent of private health spending (AHIC 1998).

Table 3.7. Spending on pharmaceuticals in selected countries, as percentage of total health care spending.

Country Percent of spending on pharmaceuticals as percentage of total health care spending Hungary 28.5 Czech Republic 25.8 Romania 23.0 United Kingdom 16.6 Germany 12.7 Note:Figures for the CzechRepublic, Hungary, and the United Kingdomare for 1995.Figures for Germanyand Romaniaare for 1996. Source:OECD Health Database 1997.

3.66. Per capita spending on drugs in Romania represents just 8-10 percent of spending in other Eastern European countries and an even smaller proportion of expenditures in Western Europe. However, experience from neighboring countries, such as the Czech Republic, Hungary, and Poland suggests that the demand for health services can easily outstrip the growth in national income, with increasing cost pressures from pharmaceuticals. The future health insurance system in Romania, therefore, needs to anticipate and be prepared for a similar development.

3.67. Availability and affordability of drugs. Most drugs seem to be readily available in urban areas of Romania. There are, however, widespread reports of poor availability of drugs in rural areas as a result of the lack of retail pharmacies.

3.68. Government influence on the price of drugs. The government influences the affordability of pharmaceuticals in two ways. First, it runs a reimbursement scheme for certain categories of drugs used in ambulatory care (drugs in hospitals are free). Second, it monitors the retail price of all drugs sold in the Romanian market. Under the reimbursement scheme the government provides drugs for certain conditions free of charge. For other drugs included on the reimbursable drug list, patients must make copayments of 20 percent. At one time a graduated copayment schedule was used in which vulnerable social groups paid a 25 percent copayment while other groups paid a 50 percent copayment. The current

31 system eliminates the two-level copayment scale but exempts certain social groups from copayments. The criteria establishing who is exempt are very broad, however, and include groups that can easily afford to pay for drugs.

3.69. Both the Ministry of Health (which monitors prices of imported drugs) and the Office of Competition of the Ministry of Finance (which monitors prices of domestically produced drugs) merely register drug prices. No attempt is made by these institutions to either validate or negotiate costs with producers or suppliers. Once CIF prices are registered, they are generally difficult to change. The government establishes official maximum price markups for the entire distribution chain. Once costs are reported to the government, retail prices are thus established.

3.70. The system of regressive markups based on prices of drugs for pharmacies has been used in Western Europe and has also been implemented in Romania. This system was intended to serve two purposes: a) ensure smaller package sizes in line with appropriate courses of therapy, so that wastage of drugs is limited; and b) narrow the band of effective compensation paid to pharmacists for performing what is essentially the same (dispensing) service. However, one cannot assume that this system encourages the dispensing of cheaper products, as the absolute amounts earned by pharmacists on higher priced drugs will still be higher. The pharmacist's role in substituting drugs is limited by the Generics Substitution Law. Also, the system of regressive markups, if carried to the extreme, can sometimes encourage therapeutically unwise packaging of drugs by producers (for example, subtherapeutic dosages of antibiotics).

3.71. The operation of the reimbursement system has had a number of problems. The government has been slow to adjust the price levels for reimbursed drugs to keep pace with inflation. This had caused supply interruptions, as the supply chain (already widely in private hands) has refused to supply at prices which do not represent replacement values and has demanded full payment from patients (a phenomenon also observed in other countries during episodes of high inflation). Recently, the government clarified its system of inflationary price adjustments at the retail level: Whenever a cumulative 5 percent inflation is reached, the two government offices (the Ministry of Health and the Ministry of Finance) accept new price submissions.

3.72. A substantial proportion of drug expenditures in Romania are out-of-pocket, irrespective of the income level of consumers. Even for so-called "reimbursed drugs" (as explained above), out-of-pocket expenditures are significant and increasing. It is conceivable that the new system of reference pricing may hasten this trend since, while the manufacturers/importers as well as the distributors (wholesalers/pharmacies) are likely to pass on inflationary price increases to the consumer immediately, the government's reimbursement price adjustments are likely to lag behind. Similar effects were observed in the first quarter of 1997.

3.73. Frequent price changes, brought about by high inflation in Romania, complicate the communication of prices of reimbursed drugs to retail drug outlets (and consumers) and leaves the door open for arbitrage as old stocks are possibly sold at the new, higher, prices. Frequent changes to the list of reimbursed drugs have also led to confusion about which drugs will be reimbursed by the government. Moreover, the government has been constrained by its limited budget and by inflation to delay payments to pharmacies for reimbursable drugs, one of the main reasons for the interruptions in drug supplies described earlier.

3.74. Registration and quality of drugs. Registration criteria for drugs (similar to the European Union registration dossiers) are clear, however, the capacity of the regulatory agency, Petre Inonescu-Stoian (Institute for Drug Control), to analyze registration documentation is limited. At the same time, anecdotal evidence suggests that most applications for registration are eventually approved.

32 3.75. Romania-along with Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovak Republic, and Slovenia- belongs to the Collective Agreement of Drug Regulatory Authorities in European Union-Associated Countries (CADREC). Drugs approved by the U.S. Food and Drug Administration reportedly do not receive the same fast-track registration accorded products approved by the European Medicinal Evaluation Agency (EMEA).

3.76. Drugs are checked for quality only at the time of registration, with little monitoring of quality undertaken subsequently. The capacity of the government and its regulatory agency to monitor drug quality (particularly to ensure that firms follow proper manufacturing procedures and tests of conduct bio- availability and bio-equivalence testing) is limited. Although the equipment required for drug testing was upgraded using the proceeds of World Bank Loan No. 3409-RO (Health Rehabilitation Project), a shortage of reagents has prevented necessary drug testing from being done. Low salaries and lack of incentives have also affected the testing capacity by causing heavy attrition of trained staff at the Institute for Drug Control.

3.77. Rational use of drugs. Individual hospitals claim to have formularies, but there is no national formulary system. The lack of adequate controls on the prescribing of drugs by physicians has resulted in irrational prescribing practices, such as overuse of brand names; excessive use of drugs - particularly antibiotics; and inappropriate combinations of drugs. Prescribing of drugs by pharmacists and inappropriate dispensing of drugs without prescription are also common. Poor information systems, including inadequate computerization in the drug payment system, make monitoring of prescribing and dispensing very difficult. This lack of information is likely to complicate the operation of the reimbursement system under the 1997 Health Insurance Law.

3.78. Pharmaceutical market and industry. Although growth in the Romanian pharmaceutical market has been significant in the past few years, it has been less dramatic than earlier reports suggested. The rapid growth in retail drug sales (particularly in local currency) often merely compensated for the drop in the supply of (free) drugs in hospitals during inflationary times.

3.79. In the past few years the drug industry has witnessed a dramatic shift away from local manufacturers. Before 1990 Romania was nearly self-sufficient, in the production of both raw materials and finished products. In fact, about 20-30 percent of production was exported, mainly to the Russian Federation and China. The technologically outdated local industry was unable to compete with cheaper international raw material suppliers or generic and research-based multinational finished product suppliers, however. Romania now imports virtually all its raw material requirements, and it is facing increasing competition from foreign finished product suppliers. In 1997, 79 percent of total drug requirements by volume (41 percent by value) were still being manufactured in Romania (table 3.8). Local value added is limited, however, and the domestic industry functions primarily as a secondary manufacturer. As a result, the pharmaceutical trade balance is now negative.

Table 3.8. Composition of the Romanian pharmaceutical market, 1997

Source BY value By volume (percent) (percent) Romanian companies 41 79 Foreign generic companies 33 15 Foreign R&D companies 26 6 Total 100 100 Source: Ministryof Health.

33 3.80. The state has virtually divested all of its former holdings in pharmaceutical manufacturing, transforming the state monopoly into seven independent production companies in the early-1990s.8 Today only three of these companies (Antibiotice, Sintofarm, and Meduman)-which could not be fully divested because of lack of private sector interest-continue to be owned by the state. Antibiotice is scheduled to be privatized later this year. Of the other two companies, one has had legal problems, involving prenationalization owners, making it impossible to privatize.

3.81. Although the government has declared its intention to provide preferential treatment to the local industry, the incentives in place are not significant. For example, rather than allow differential markups, the government could provide preferential investment tax credits to local manufacturers. Such incentives could help attract foreign capital, which has been attracted primarily to small-scale generic manufacture; no multinational R&D company has invested in local manufacture (some joint-venture projects are reportedly under discussion). Persistent lack of transparency in pharmaceutical regulations and the unpredictable political and economic environment are among the reasons for slow progress to date.

3.82. Many state-owned importers and distributors have been privatized, although the process began in earnest only in 1995. Early privatization involved the easily divestable pharmacies. The market success of the newly established private wholesalers and pharmacies since 1990 has made the state-owned distribution system progressively less attractive to investors.

3.83. Internationally recognized quality assurance measures (such as good manufacturing practice) have not been fully implemented in the pharmaceutical industry. Although the government has announced that all firms will be expected to conform to good manufacturing practice standards by 2000-01, very few companies (primarily some large producers) seem able to achieve these standards and the government has provided few incentives (such as targeted tax credits for investments in quality assurance) for firms to invest in such standards.

3.84. The only real advantage the domestic industry retains is its low price levels relative to imported products. This situation creates a major dilemma for local producers. On the one hand, investing in quality assurance is likely to increase costs and push up the prices charged by domestic firms (possibly close to the prices of imported drugs). On the other hand, failure to invest in quality assurance will compromise the local industry's ability to eventually comply with government mandated standards, export drugs, and participate in the European Union market. Policymakers will need to consider the problem faced by domestic producers before implementing reforms.

3.85. Although accession to the European Union remains years away, the prospect of accession provides both challenges and opportunities for Romania. It would be in Romania's interests to track regulatory changes occurring in Europe as a result of the transparency created by the introduction of the Euro. The advent of the Euro will expose intercountry price differentials and the reasons for these differentials, inevitably creating demand for greater efficiency in the system. The British system, for example with its high concentration of wholesalers and chain pharmacies, is vastly more efficient than the German system. Romania will need to adopt the more efficient aspects of the various European Union models.

Strategic Objectives

3.86. Reform of the pharmaceutical sector needs to be consistent with the overall reform of the health sector, including the new health insurance system. Specifically, reforms should aim to help the government function effectively as a financier and regulator of the pharmaceutical sector; make

8 The Health Rehabilitation Project (Loan 3409-RO) financed a study to evaluate and advise on the privatization of the Romanian pharmaceutical industry.

34 affordable, good-quality drugs available to the entire population in an equitable manner through the National Health Insurance system; ensure the rational prescription, dispensing, and consumption of drugs; and assist in the upgrading of the domestic pharmaceutical industry.

Interventions

3.87. New organizational structure. A new organizational structure is needed to streamline the interactions of stakeholders involved in the regulation and financing of pharmaceuticals. (The organizational chart in Annex 5 summarizes a possible new structure.) Many policymakers currently favor the idea of having one agency play both the technical function (of registering, licensing, and inspecting drugs) and the politically sensitive function of setting reimbursement levels. Strict separation of the technical and reimbursement roles is critical to ensure that technical decisions are not biased by the inevitable economic and budgetary compromises inherent in the reimbursement function.

3.88. Only the technical functions of registration, licensing, and inspection would be included in the mandate of a National Drug Agency. The agency would also provide input to a drug committee (composed of pharmacists and physicians) responsible for developing a reimbursable drug list and associated comparative therapeutic protocols. It is important that the College of Physicians obtain recommendations from each of its specialty associations and that both specialists and general practitioners serve on the drug committee.

3.89. The reimbursement level for each treatment protocol should be negotiated by the Health Insurance House based on the advice of a pricing committee consisting of the Department of Pharmacy of the Ministry of Health, the Ministry of Finance, and experts in drug reimbursement. The establishment of a payer system through the National Health Insurance Fund provides the opportunity to create a new approach to selecting and reimbursing essential drugs which emphasizes the appropriate process for establishing a list, rather than limiting the number of drugs to be reimbursed. The approach would identify common diseases (based on Romania's epidemiological profile ), develop standardized therapeutic guidelines and protocols for each disease (based on efficacy and cost-effectiveness criteria), and formulate an essential drug list through a consensus approach involving all key stakeholders (general practitioners, specialists, and pharmacists). An initiative associated with the essential drug list is the development of public sector formularies at various levels. Formularies for secondary and tertiary care hospitals need to be harmonized and should form the basis of a pooled hospital drug procurement system. Pooling of hospital resources to increase purchasing power could be promoted through purchasing cooperatives of regional hospitals.

3.90. As an additional cost-containment measure, most modem payer systems focus on the demand side, i.e., the prescribing physician. Cross-country evidence suggests that cost containment models that set targets for groups of doctors rather than individual physicians are of limited effectiveness. For this reason, most modern payer systems focus on prescribing physicians. To achieve results, individual physicians' prescribing habits must be made transparent (within universally agreed upon criteria ensuring confidentiality). Because monitoring prescribing habits requires a fairly sophisticated system, however, drugs should be included in doctors' budgets only after such a system is established.

3.91. The reform process would be facilitated by establishing a central information source that cuts across interministerial barriers and promotes coordination among agencies. The Department of Pharmacy would receive, collate, and disseminate all data and information relevant to pharmaceutical sector reform, including information on donor activities. Information that could be provided only by the private sector could be obtained through appropriate government mandates. To function effectively, a centralized information source needs the cooperation of all the government agencies involved (which will continue collecting information related to their respective functions). Setting up such a system would require an interministerial decision.

3.92. Legislation relevant to pharmaceuticals, including laws relating to the registration of drugs, quality assurance and quality control, and intellectual property protection, should be analyzed and harmonized, as

35 appropriate, with the European Union's legal framework. Romania should also aim to participate, wherever possible, in European and global regulatory networks.

3.93. Quality control and quality assurance systems. The quality assurance system for pharmaceuticals needs to be improved. A study should be commissioned to update the analysis carried out under a study of the local pharmaceutical manufacturing industry (financed under the Health Rehabilitation Project, Loan 3409- RO). Funds for initiatives to strengthen the regulatory and quality assurance systems could be generated by earmarking a proportion of the value-added tax on drugs. The charges imposed on industry for registering and testing drugs could be increased to levels that cover the operating expenses of the agency responsible for registration, licensing, and inspection (staff salaries could continue to be paid from the Ministry of Health budget). Finally, privatization of the pharmaceutical sector in Romania should continue unimpeded.

3.94. Rational use of drugs and human resource development. Training in the rational use of drugs should be included in medical and pharmacy schools curricula as well as in continuing education programs. The accreditation of health professionals should also be linked to adequate knowledge of rational drug use. Consideration should also be given to raising public awareness through mass media campaigns.

3.95. Ruralpharmacies. Reports of inadequate coverage by pharmacies in rural areas should be investigated to determine the extent of the problem. If the problem is significant, it could be dealt with by providing incentives to doctors and pharmacists to cover these areas mandating young professionals to serve some time in rural areas as part of their professional education, equipping govemment facilities to increase the levels and the geographical reach of ambulatory care programs, and allowing doctors operating in rural areas where a significant problem of access exists to carry and sell pharmaceuticals directly to patients.

F. INNOVATION AND RESEARCH

3.96. Successful reform of management and service delivery requires a change in culture from one that stifles initiative to one that encourages and demands it. It also requires development and use of national capacity for operational research and greater involvement of the NGO sector in management and service delivery.

Strategic Objectives

3.97. The general objective would be to improve productivity in the health sector and increase its responsiveness to the needs of the population. More specifically, the objectives would be to create an environment that is supportive of new approaches to management and service delivery, ensure that funds are available to try out new ideas on a small scale before implementing them on a large scale, and provide the means to share experiences across institutions and districts as well as between the private and public sectors.

Interventions

3.98. A Health System Innovation Fund could be established to promote and finance carefully selected projects. Projects would be selected on the strength of proposals, the motivation and capacity of the entity making the proposal, the expected impact of the project, and the potential for extension from small-scale experimentation to large-scale implementation. Areas with potential impact include introduction of new approaches to service delivery and interactions with patients (including but not limited to changes in the mix of services); community-based care; remuneration of workers (with incentives to increase productivity); management and/or ownership of public health care facilities (diagnostic, therapeutic, and "hotel services," such as laundry and catering); and management tools and functions (contracting, cost accounting and evidence-based management).

36 IV. THE CHALLENGE OF IMPLEMENTATION

A. A PHASEDAPPROACH

4.1. Most of the analyses and recommendations contained in this document were developed in cooperation with Romanian professionals. The contents were-and remain-the subject of intense public debate. Formulating reform program should be an iterative process that specifies problems and goals and identifies reasonable strategies for achieving them. For implementation to be successful, the major interest groups in Romania must have a sense of ownership of the goals and objectives of reform. Successful implementation also requires a program of support by partner agencies.

4.2. Two main considerations would guide the successful implementation of ideas outlined in this document. First, given the enormity of the reform agenda in Romania and the limited implementation capacity, a phased approach to implementation is necessary. Second, there is a need to define clearly what is best done by the government and what is best facilitated by government but undertaken by entities individuals other than the government (or in partnership with government).

4.3. Major activities would develop a health sector that is realigned to focus on priority health problems using cost-effective and technically efficient interventions and based on equitable and sustainable financing. The systemic nature of problems in the sector and the massive scale of inputs required to meet needs could lead decisionmakers to conclude that all of the sector's problems must be tackled simultaneously. Doing so would be a mistake, however, given Romania's limited technical and management capacity and the often iterative nature of health sector reform. A pragmatic approach to health sector reform in Romania would be one that is done in phases, with a commitment to experimentation in a structured fashion.

4.4. Solutions to some of the more serious problems could be developed and implemented over a period of about six years. The first phase of reform could focus on establishing an environment that is supportive of a more effective and efficient health sector. Phase I could also involve restructuring health services in a small number of districts. Specific interventions could include the following:

* Defining the legal and regulatory basis, governance, statutes, and ownership criteria for key institutions in the health sector * Building capacity for policy analysis and management of the new health insurance system 3Developing effective, efficient, and sustainable models for remunerating service providers and ensuring effective health service management and delivery through demonstration sites * Stimulating functional integration and coordination among different levels and types of care * Improving the legal, regulatory, institutional, and operational basis for high-priority public health and disease control activities * Designing a health system innovation fund to support nationwide roll-out of the models developed.

4.5. The second phase of reform could build on lessons learned during the first phase. Health service restructuring could be rolled out throughout the country, and achievements in sector policies, legislation, and regulations could be consolidated. Specific reforms could include the following:

* Supporting implementation of the new health finance system (including the regulation, supervision, and purchasing functions of the health insurance houses) * Capitalizing a health system innovation fund to support the adaptation and nationwide implementation of health service management and service delivery models developed during the first phase of reform

37 * Developing a national quality improvement and accreditation program * Supporting a rational pharmaceutical policy that sets forth regulations on quality assurance, prescribing behavior, reimbursement, and usage * Setting up a public health interventions grant program.

(Annex la presents this suggested sequence of implementation in a matrix.)

B. THE ROLE OFTHE GOVERNMENT

Governance and Regulation

4.6. A vital government role is to create and maintain an environment that is supportive of effective policies and research on such policies. The Ministry of Health needs to be willing to consult with interest groups whose views may differ from its own and to commit to health sector reform that involves actors beyond its purview. An instrument to achieve this is the proposed national health council.

4.7. Access by the public and partner agencies to government databases on health status, service usage, and household income and expenditures are critical to a national health research effort. Currently, such access is restricted. The government needs to be more open and to facilitate public access to its databases, including those held by the Ministry of Health, the Ministry of Finance, and the National Institute of Statistics.

4.8. Sustained political commitment is crucial. Government action is required to establish and maintain the legal basis of regulatory agencies and to secure funds required for their operation. Professional bodies, particularly the Colleges of Physicians and Nurses, will play important technical roles in this process and will have to work to enlist the support of their respective constituencies for the emerging regulatory framework. The government may need to purchase technical services from these professional associations and provide resources to develop their competencies.

Health Sector Finance

4.9. The government needs to follow up its amendments to the 1997 Health Insurance Law with changes to regulations affecting its implementation (including the statute of the Health Insurance House). Once the government has had the opportunity to analyze the costs and risks of granting district health insurance houses full autonomy (including responsibilities for revenue collection), it may want to consider additional amendments to the law.

4.10. Institutions need to be established and qualified personnel recruited and remunerated adequately to ensure effective management of the health insurance system. Capacity building and skill development are needed to ensure that the local workforce is capable of implementing the health insurance system.

Structure, Organization and Management of Health Services

4.11. Political support is key to the success of health reform in Romania. Ensuring this support requires an information and communications effort that targets national and local policymakers. Public information and education regarding the nature of reform, its goals, the tradeoffs, and the role to be played by all citizens will also be key to fostering broad-based support from multiple stakeholder groups. Public information is also necessary to ensure that the populations is aware of it rights and duties as well as the advantages and limitations of the new system.

4.12. The government's commitment to the public's health can be demonstrated in a very visible way through legislative priorities. Attention should be paid to formulating and passing laws and regulations that have a direct impact on the principal causes of Romania's burden of disease. Comprehensive tobacco control legislation, for example, could significantly affect smoking behavior. Measures that have proven effective in 38 other countries include advertising and promotional bans, enforcement of restrictions on cigarette sales to minors, and strict enforcement of penalties for cigarette smuggling. Stiffer laws and penalties for drinking and driving could help deter such behavior, provided interventions are properly targeted and consistently enforced at all levels of government. Extensive and intensive efforts to educate and inform the public will be necessary if such laws are to have an effect.

4.13. Actors outside the public sector in Romania help meet certain health needs of the population. In most cases, however, collaboration between these organizations and the public sector is minimal. It is critical that the public sector acknowledge that it cannot bring about the breadth and depth of change needed to reform the health sector by itself and increase coordination with NGOs, other private sector organizations, and industry. Joining forces with the private sector in creative ways would help stimulate public interest, including that of policymakers, and attract the attention of the public.

4.14. Although NGOs can play an important role in the health care sector, they cannot solve the sector's problems alone. NGOs have increasingly been promoted internationally as alternatives to state health care providers, yet international experience has shown that they may suffer from resource constraints and management inefficiencies similar to those of government providers. Policy development requires a strong- if narrowly focused-government presence in regulation and setting of standards (Gilson and others 1994). Decisions on NGO involvement in innovations and research, to be funded from public sources, should be encouraged and carefully monitored.

4.15. The central government should demonstrate its commitments to decentralization by granting districts greater authority, autonomy, and responsibility for managing finances, health facilities, services, staffing needs, and costs. Private sector activities in health care should also be encouraged, particularly in underserved areas, to help reduce inequities. Both for-profit and nonprofit private organizations could help develop new approaches to service delivery, management, and performance incentives.

4.16. Political commitment is critical to the success of any plan to rationalize physical assets in the health sector. Laws, government decisions, and other normative instruments should be reviewed (or designed) and enforced in order to introduce cost accounting methods in public facilities, allowing inclusion of capital depreciation in cost of services provided. Property rights to health care facilities owned by "the State" should be defined and possibilities for transferring ownership investigated. Investment funds for (or licensing of) new heavy equipment or high-cost services should be allocated only after analysis of the effect of such investment on operational costs is performed and the possibility of reducing inpatient services considered.

4.17. Development of funding arrangements under the new health insurance scheme should be oriented toward rewarding appropriately and efficiently delivered services rather than based on the cost of inputs. There should be a gradual movement away from retrospective, historical funding arrangements toward prospective funding, compensating services of adequate quality at the same rate. It is important to strengthen national capacity to oversee implementation of changes to contractual arrangements for providers. It is desirable for the Ministry of Health and the National Health Insurance House to take a phased approach to changes in provider payment arrangements and service delivery, testing new approaches with pilots. Decentralization to district-level health service management should be undertaken carefully, based on a realistic assessment of local management capacity and supported by appropriate management tools to improve the chances of success. Regulations and funding arrangements should be reviewed in order to allow for development of pilot projects and encourage innovations.

4.18. The human resources capacity of the Ministry of Health must be strengthened to improve and coordinate information on the health care workforce and develop health sector professional competencies in the Ministry of Education. Other key roles of the government include developing accreditation for medicine, nursing, and other professional schools; supporting the establishment of departments of family medicine and creating a family medicine development organization to deal with all aspects of education and practice of family doctors; clarifying the definitions of the allied health professions, establishing distinct educational

39 tracks, strengthening nursing curricula, and developing nursing faculty for universities, and strengthening nursing administration training; developing a national continuing education facility and program for all of the health professions using interactive television or Web-based videoconferencing.

C. PROGRAMIMPLEMENTATION

4.19. The government needs to follow through with implementation, using external assistance, in the form of grants and loans, as necessary. Bureaucratic obstacles to implementation should be removed where possible.9

4.20. The government should also acknowledge that the Ministry of Health is neither the only nor the best agency to implement projects financed by the World Bank or other donor agencies. Despite its known weaknesses in implementation, the Ministry of Health has been reluctant to procure needed technical assistance to help with implementation. As a result, implementation has been needlessly delayed. To avoid such problems in the future, the government and the Bank should explore more effective institutional arrangements for project implementation. These include using other government agencies (such as the Ministry of Finance), the National Health Insurance House, NGOs, and private sector contractors.

4.21. The various sources of assistance for implementation, including donor assistance, need to be carefully coordinated. The government could create a steering committee, under the auspices of the Ministry of Health, to ensure that assistance is used effectively.

9 Sometimesthese obstacles are beyondthe controlof the Ministryof Healthor the Ministryof Finance.The Courtof Accounts'rigid ex ante verificationand approvalprocedures for even minor contracts,for example,have been a sourceof delay in implementingthe firsthealth project (Health Rehabilitation Project, Loan 3409-ROfrom the WorldBank).

40 Annex la Recommended Implementation Schedule

Modules Phase 1. (Months 1 -30) Phase 2 (Months 25-72) Health Finance Objective: Implement plans developed in Reform . Develop capacity for policy analysis and management of the new finance system. Phase 1. To include training, (Revenue * Clarify and possibly restructure national health insurance houses. capacity building, information Collection; technology. Institutions; Main activities: Capacity * Formulate statutes, guidelines and tools for managing the system. Building). . Prepare for infrastructure investments. . Develop National Health Accounts (NHAs, including public and private out of pocket). . Conduct studies of willingness and ability to pay for health services. . Use results of studies to inform decisions on resource allocation. * Train current and prospective managers of the health insurance system. * Conduct Pre-investment studies (particularly, prior to major IT investments).

Inputs: . Technical assistance. . Training, workshops, study tours.

Reform of Objectives: * Implement Nationwide roll- provider . Increase productivity of health care delivery system. out, contingent upon the payment . Introduce incentives for provision of cost-effective services. achievement of benchmarks in system. . Stimulate functional integration/co-ordination of community, primary care, hospital and emergency services. Phase 1. . Change the behavior of providers and patients in line with increased productivity. * Implement drug reimbursement mechanisms Activities (pilots): providing incentives for . Introduce/refine new payment systems for primary health care - mixed capitation, practice budgets. rational prescribing and cost * Develop cost-accounting systems in hospitals. containment. Related to * Study cost structures (and quality-cost tradeoffs) of health services. health service delivery and . Prepare pre-investment studies: link payments to outcomes/outputs,cost control. management. * Evaluate and prepare for nation-wide roll out in Phase 2.

Inputs: . Training, workshops, study tours. * Technical assistance. . Limited infrastructure (site preparation, information technology).

41 Modules Phase 1. (Months 1 -30) Phase 2 (Months 25-72) Health Service Objective: * Promote effective, efficient, Delivery and * Develop a more effective and efficient service delivery system. high quality service delivery Management. through Health System Activities: Innovation Fund * Review and design laws and regulations regarding status, governance and ownership of main types of health facilities. * Implement nation-wide roll * Review and design investment policy/regulations in health sector, define and agree on criteria for rationalization of out of selected initiatives assets (also a precondition for Health System Innovation Fund). piloted in Phase 1, based on * Implement and evaluate pilot delivery models (pilot selection based on explicit criteria/competition): agreed criteria. * Family medicine practice (group practice, practice management in public and private settings, integration/coordinationwith hospital, home, community and other levels of care, referral mechanisms, * Train and disseminate delivery of preventive care) information in support of * Training of family physicians, nurses, health services managers (in coordination/ co-financed with other rational prescribing of donors) pharmaceuticals. * Emergency care (regionalization, interagency cooperation and functional integration) * Hospital management development/innovations * Strengthen institutional Develop Local Health Plans (jointly by health insurance fund, health and local authorities, service providers) support for development of * Alternative delivery models for deprived or scarcely populated areas, isolated communities. guidelines and quality * Set up system of prescription monitoring and feedback to providers. Use morbidity patterns and practice assurance processes. Follow- guidelines for rational prescription. up activities on quality * Evaluate pilots, using them as a basis for the design of a future Health System Innovation Fund and prepare for assurance nationwide roll-out in Phase 2.

Inputs: * Medical equipment. * Information technology. * Technical assistance. * Training, workshops, study tours.

Public Health Objectives: * Strengthen priority public and Disease * Develop capacity to control main causes of illnesses and premature deaths through public health interventions. health interventions for control Control. * Establish effective legal and regulatory basis for public health and disease control. of TB, cardiovascular diseases, cancer, HIV/AIDS. Activities: * Implement Public Health * Strengthen institutional building and capacity development (Health Promotion Network, Public Health Institutes). Interventions grants program. * Upgrade epidemiological databases and surveillance network. * Prepare studies to update knowledge of local risk factors for main causes of morbidity and mortality. * Prepare Health Promotion and Disease Prevention Policy document to be endorsed by GOR.

42 Modules Phase 1. (Months 1 -30) Phase 2 (Months 25-72) * Support passage of tobacco control legislation. * Conduct formative research in support of public health interventions and advocacy. * Pilot new approaches of priority public health interventions for control of TB, cardiovascular diseases, cancer, HIV/AIDS. * Pilot Countrywide Integrated Non-communicable Disease Intervention (CINDI) program at district level. * Prepare Public Health Interventions Grants Program (part of Health System Innovation Fund in Phase 2).

Inputs: * Medical equipment (diagnostic, lirnited quantities). * Information technology. * Technical assistance. * Training, workshops, study tours (e.g. to Poland, CDC Atlanta, Framingham MA, Finland, Estonia).

43 Annex lb. Recommended Amendments to the Legal Framework: A Summary of Priorities

Issue Law/Article Proposed changes 1. Redistribution of revenues/ HIL, art 51. art 51.1: The budget of the National Insurance equity of health finance system: House will be created by: 1.1. Lack of clarity regarding the a. the contribution of 30% of the district insurance creation of the budget of the houses; National Insurance House b. Subventions from the state budget; and c. Other incomes. 1.2. Lack of clarity with regard to HIL, art.60 art 60. The funds of the National Insurance House the utilization of the National will be used for: Insurance House budget a. Redistribution among all public Health Insurance Houses according to a formula that will be revised yearly for the application of the article 68; b. Administrative expenditure, up to a maximum of 5%; and c. Reserve fund, up to the limit of 5%. 1.3. The GOR's Ordinance 125/98 HIL, art. 59 Specify criteria for determining the percentage of amending the 1997 Health revenues to be redistributed and criteria for Insurance Law allows up to 25% redistribution. redistribution, but there is a risk that Parliament will reduce the level of redistribution to a level inadequate to achieve fair equity of access to basic services. 1.4. a. No indication of the HIL, art.68 art 68 b. The Policy Board of the National principles to be used for Insurance House will decide and publish on a redistribution yearly basis the redistribution formula, based on b. No flexibility to allow for per capita expenditure adjusted according to: (a) adjustments according to changes need for health services; and (b) potential to raise of health needs and capacity to revenue. This is in order to minimize inequalities raise revenue of access to basic health services. 2. Organization/ management HIL, art.66 art. 66 The ruling bodies of the National capacityof healthinsurance network Insurance Fund are: a. the Policy Board; and b. the executive Board. 2.1. Excessive fragmentation of risk HIL, art 67.a The statute of the National Health Insurance pools with multiple, autonomous House (NHIH) will supersede those of district- health insurance houses. level public Health Insurance Houses. It will Risks of multiple and expensive provide the functions and processes by which administrative systems. These NHIH has the authority to issue regulations, include inefficient development of protocols, guidelines and norms, applicable to all providers, duplication and public Health Insurance Houses. All provisions of diseconomies of scale, which could Statutes of public Health Insurance Houses must

44 Issue Law/Article Proposed changes be avoided by means of a be in compliance with provisions of the Statute of regionalized approach to provider the NHIH. rationalization/development. ra tinliati ocn/vsm enr Change from a system of 41 autonomous district delimitation of specific roles of the health insurance houses to 6-10 regional insurance National Health Insurance House in houses. (covering populations of 2-4 million). National Health InsuranceH Use of fiscal authorities to collect revenue on rselati toe districtHel nsanc behalf of HIHs should be permitted if this is more Houses at the district level and to efcetadefcie fiscal authorities in relation to efficient and effectve. revenue collection. 2.2. The present law is inconsistent, HIL, art.1.2. Health insurance is compulsory and is based on stating the possibility of choice of the principles of "solidarity, subsidiarity and the Insurance House but efficiency" in collecting and using the funds. introducing a system of one The provisions regarding choice of the insurer insurance house per district. The for the compulsory/social insurance should be possibility of choice of insurer eliminated. should be excluded. 2.3. Elections for the boards of the HIL, art.72, Articles have been amended to provide for health insurance houses 73, 74, 75, 76, appointment of Boards in the interim, but 77, 78 provisions for elections from 2002 should be reconsidered; clear criteria and a transparent process for Board appointments should be included to ensure appropriate skills among Board members; and Managers' salary levels should reflect responsibility for day-to-day management of a large organization with major financial responsibilities. 3. No provision for establishing Organic Law A special act (organic law) should be passed by the National Agency for for NAAQI to the Parliament to enable the establishment of an Accreditation and Quality be drafted independent public organization, the National Agency for Accreditation and Quality. 4.. Law on Hospitals/ GP Draft law on Need to define boundaries of autonomy and lines practices hospitals, of accountability for hospitals and other provider Ordinance on institutions. Possible establishment of hospitals as medical public autonomous institutions, governed by offices bodies appointed by local authorities, local health authorities, local business communities and Universities (for teaching hospitals). Introduce cost accounting methods in public- owned facilities similar to those in commercial companies, allowing inclusion of capital depreciation in cost of services provided (capital no longer "free"). Clarify property rights over health care facilities owned today by "the State" and define possibilities of transfer of ownership. (Review who exercises State ownership: central or local

45 Issue Law/Article Proposed changes authority, which health care units and/or types of assets can be rented, leased or sold). Link allocation of investment funds for (or licensing of) new heavy equipment or high cost services to requirements of both sound analysis of consequences in terms of operational cost and of possible reduction of inpatient services.

46 Annex Ic Romania: Ministry of Health

MINISTEROF HEALTH

COUNCILLORS FINANCIALCONTROL

HUMANRESOURCES L DAM

SPECIFICISSUES INTERNATIONS

|SECRETARYOFSTATE SECRETARYOF STATE

GENERAL GENERALDEPT. PREVENTIVE GENERALDEPT. HEALTH GENERALDEPT. PREVENTIVE MEDICAL PROGRAMS, OF MEDICINE ASSISTANCE REFORMAND BUDGET ACCREDITATION PROMOTIONIII

z

w 0 (D~~~~~~~~~~~

0~~~ z < 0~~~4

tt 0 w 4Z10 My Annex 2 NATIONAL HEALTH ACCOUNTS: EXPENDITURES

NATIONAL HEALTH ACCOUNTS Recurrent Expenditure 1996 (In million lei)

State BudgetAllocation Useof Funds Ministryof Other Special External LocalFunds Other PrivatebI Total % Total Health Ministriesa/ Health FundsTotal Total Fund

HOSPITALS 889,975 100,150 211,788 1,241 455,214 554,916 2,213,284 49.83 INSTITUTES 99,027 21,077 66,935 7,137 15,102 209,278 4.71 DISPENSARIES 438,407 13,254 75,998 0 53,014 0 213,147 793,820 17.87 POLYCLINICS 17,580 1,143 0 0 11,389 154,440 184,552 4.16 SANATORIUMS 20,028 7,263 0 8,381 0 0 35,672 0.80 BLOODBANKS 17,464 14,731 0 0 0 32,195 0.72 AMBULANCESERVICES 56,146 329 0 20,247 0 76,722 1.73 CRECHES 21,783 1,055 0 7,210 0 30,048 0.68 ORPHANAGES 32,773 679 0 12,980 0 46,432 1.05 ADMINISTRATION 30,174 2,338 0 0 0 32,512 0.73 AMBULATORYDRUGS 178,185 0 0 0 313,017 491,202 11.06 OTHER 55,571 0 21,445 2,073 70,200 149,289 3.36 PROSTETHICS 269 0 0 0 269 0.01 NATIONALHEALTH PROGRAM 146,263 146,263 3.29 GrandTotal 1,769,620 168,975 514,855 68,176 585,628 28,564 1,305,720 4,441,538 100.00

% Total 39.84 3.80 11.59 1.53 13.19 0.64 29.40 100.00

a/ Allocatedto "uses"in the sameproportion as the 1997budgets.

b/ Allocationsaccording to HealthExpenditure Survey where available. The unallocatedamounts were allocatedto hospitals,dispensaries and polyclinics,in proportionto the MoHexpenditure.

Source:AHIC Studyof RomanianHealth Sector Financing.

48 NATIONAL HEALTH ACCOUNTS Capital Expenditure 1996 (In million lei)

State BudgetAllocation Use of Funds Ministryof Other Special External LocalFunds Other Privatebt Total % Total Health MinistriesalHealth Fund FundsTotal Total

HOSPITALS 55,720 13,445 7,542 76,707 55.41 INSTITUTES 14,981 4,616 122 19,719 14.24 DISPENSARIES 10,124 2,443 331 12,898 9.32 POLYCLINICS 1,538 34 430 2,002 1.45 SANATORIUMS 111 27 187 325 0.23 BLOODBANKS 1,107 267 176 1,550 1.12 AMBULANCESERVICES 1,252 302 46 1,600 1.16 CRECHES 17 4 62 83 0.06 ORPHANAGES 44 11 53 108 0.08 ADMINISTRATION 15,418 2 0 15,420 11.14 AMBULATORYDRUGS 0 0.00 OTHER 7,706 318 8,024 5.80 PROSTETHICS 0 0.00 NATIONALHEALTH PROGRAM 0 0.00 GrandTotal 100,312 24,205 13,049 0 0 870 0 138,436 100.00

% Total 72.46 17.48 9.43 0.00 0.00 0.63 0.00 100.00

a/ Allocatedto "uses"in the sameproportion as the 1997budgets. b/ Allocationsaccording to HealthExpenditure Survey where available. The unallocatedamounts were allocatedto hospitals,dispensaries and polyclinics,in proportionto the MoHexpenditure.

Source:AHIC Studyof RomanianHealth Sector Financing.

49 NATIONAL HEALTH ACCOUNTS Total Expenditure 1996 (In million lei)

State BudgetAllocation Useof Funds Ministryof Other Special External LocalFunds Other Private"' GrandTotal % Total Health Ministriesa/Health Fund FundsTotal Total Total Total

HOSPITALS 945,695 113,595 219,330 1,241 455,214 0 554,916 2,289,991 50.00 INSTITUTES 114,008 0 25,693 66,935 7,137 15,224 0 228,997 5.00 DISPENSARIES 448,531 15,697 76,329 0 53,014 0 213,147 806,718 17.61 POLYCLINICS 19,118 0 1,177 0 0 11,819 154,440 186,554 4.07 SANATORIUMS 20,139 27 7,450 0 8,381 0 0 35,997 0.79 BLOODBANKS 18,571 267 14,907 0 0 0 0 33,745 0.74 AMBULANCESERVICES 57,398 302 375 0 20,247 0 0 78,322 1.71 CRECHES 21,800 4 1,117 0 7,210 0 0 30,131 0.66 ORPHANAGES 32,817 11 732 0 12,980 0 0 46,540 1.02 ADMINISTRATION 45,592 0 2,340 0 0 0 0 47,932 1.05 AMBULATORYDRUGS 0 0 178,185 0 0 0 313,017 491,202 10.72 OTHER 0 63,277 0 0 21,445 2,391 70,200 157,313 3.43 PROSTETHICS 0 0 269 0 0 0 0 269 0.01 NATIONALHEALTH PROGRAM 146,263 0 0 0 0 0 0 146,263 3.19 GrandTotal 1,869,932 193,180 527,904 68,176 585,628 29,434 1,305,720 4,579,974 100.00

%Total 40.83 4.22 11.53 1.49 12.79 0.64 28.51 100.00 a/Allocated to "uses"in the sameproportion as the 1997budgets. b/ Allocationsaccording to HealthExpenditure Survey where available, The unallocatedamounts were allocatedto hospitals,dispensaries and polyclinics,in proportionto the MoH expenditure.

Source:AHIC Study of RomanianHealth Sector Financing.

50 Annex 3 Health Insurance Revenues And Needs Index, 1998

Insurancerevenue per person (Inthousand lei) .20%reserve and -20%reserve and Ratioof (A)to Ratioof (B) to Judet beforeredistribution afterredistribution NeedsIndex * NationalAverage NationalAverage of7% fund - (A) of 7%-(B) Alba 415 379 0.99 1.05 0.96 Arad 435 396 1.02 1.10 1.00 Arges 418 381 0.98 1.06 0.96 Bacau 345 333 0.99 0.87 0.84 Bihor 396 362 1.03 1.00 0.91 Bistrita 268 333 0.97 0.68 0.84 Botosani 222 333 1.03 0.56 0.84 Braila 336 333 1.00 0.85 0.84 Brasov 495 451 0.97 1.25 1.14 Buzau 314 333 0.99 0.79 0.84 Calarasi 249 333 1.02 0.63 0.84 Caras 308 333 1.01 0.78 0.84 Cluj 558 509 0.99 1.41 1.29 Constanta 467 426 1.02 1.18 1.08 Covasna 367 335 0.99 0.93 0.85 Dambovita 284 333 1.00 0.72 0.84 Dolj 391 357 1.00 0.99 0.90 Galati 434 396 1.00 1.10 1.00 Giurgiu 214 333 1.04 0.54 0.84 Gorj 338 333 0.99 0.85 0.84 Harghita 311 333 1.00 0.79 0.84 Hunedoara 359 333 1.02 0.91 0.84 lalomita 312 333 1.02 0.79 0.84 lasi 350 333 1.00 0.88 0.84 Maramures 308 333 1.02 0.78 0.84 Mehedinti 295 333 1.00 0.74 0.84 Mun.Bucuresti 725 661 0.98 1.83 1.67 Mures 424 387 1.01 1.07 0.98 Neamt 271 333 0.99 0.68 0.84 Olt 254 333 1.00 0.64 0.84 Prahova 451 412 0.98 1.14 1.04 Salaj 285 333 1.03 0.72 0.84 Satu-Mare 277 333 1.08 0.70 0.84 Sibiu 428 390 0.98 1.08 0.98 Suceava 239 333 0.99 0.60 0.84 Teleorman 262 333 1.01 0.66 0.84 Timis 502 458 1.01 1.27 1.16 Tulcea 279 333 1.04 0.70 0.84 Valcea 412 376 0.98 1.04 0.95 Vaslui 183 333 1.01 0.46 0.84 Vrancea 274 333 0.99 0.69 0.84 Romania 396 396 1.00 1.00 1.00 CorrelationNeeds and Revenue -0.30 * see Notes on next page

51 * Notes: The Needs Index was derived from two components:

a. An index of health service use, based on demographic characteristics of the population: Health Service Index = 0.7*age standardized hospital admission rate + 0.3*age standardized use of General Practitioner Services.

b. A HealthIndex, being the StandardizedMortality Ratio underage of 65 per Judet: The Needs Index = 0.8* Health Service Index+0.2*Health Index

The indices can be interpreted as follows:

The Health Service Index would be the way resources should be allocated if the age of the population were the only determinant of the need for health services AND 30% of resources were to be allocated to the Primary Care Sector (as considered by the PHARE Report) and 70% to Hospital Services. Variation in these two elements was quite low. However, it is apparent from the large variation in the Standardized Mortality Ratio across Judets that the demography is not the sole cause of variation in health status.

Standardized Mortality Ratio under age of 65 is not the ideal proxy for health status, but this index used readily available data and is not proposed as a final product. This is an important issue since Standardized Mortality Ratio across Romania vary from 0.86 to 1.41.

The Needs Index gives a weighting of 20% to the "health" indicator-Standardized Mortality Ratio and 80% to the demographically based estimate of the need for services.

52 Correlationof needs indexwith per capita health insurance revenuein Romaniandistricts (1998 estimates)

_ _ _ _ _ - 1 .9 0 -- * * - -. _ _ _ - ,

*> 1.70 u 1.50

1.30 .'o ,,, 1.10 -- - -*------

0.

0 0.90 .. ..---.------

X 0. X X X x

0.70 0.96 0.98 1.00 1.02 1.04 1.06 needs index

53 Estimated per capita revenue of health insurance, before and after redistribution of 7%, Romania 1998

Mun. Bucuresti

Timis_

Constanta

Arad_

Sibiu _

Arges

Valcea

Hunedoara

;'Bacau Bl~~~~~~~Su~~~

48 Brailai

lalomita

Maramures

Mehedinti * Insurancerevenue per person(in thousandlei): -20% reserveand Danmbovita after redistributionof 7% - (B)

Satu-Mare.i U Insurancerevenue per person(in Neamt thousandlei): -20% reserveand beforeredistribution of 7% fund -(A) Teleormau [

Calarasi

Botasani

Vaslui

0 200 400 600 800 per capita health insurance revenue, thousands lei

54 Annex 4a Burden of Disease and Prioritization of Health Services

INTRODUCTION

I. Health care in Romania, as in most of the formal socialist economies,continues to be dominatedby a strong disconnectbetween the major health problems of the populationand the types and orientation of health services deliveredto the population. The legacy of the former system is such that health care in Romania continuesto be heavily medicalized,centered on in- patient, curativeinterventions, and sorelylacking in interventionsin primary care, preventionand promotion,and treatmentof conditionsin ambulatorysettings by health professionalsother than specialistdoctors. This legacy of the past is falling far short in meeting the health challenges emergingfrom Romania'sdemographic and epidemiologictransitions.

2. In order to achieve efficientuse of health care resourcesand to have the greatestimpact on health status, Romanianhealth policymakersneed a mechanismthrough which a better match between the Romania's disease burden and appropriate cost-effectiveinterventions can be achieved, emphasizingprevention of disease, promotion of healthy behaviors, and changes in incentivesfor providers and consumersin terms of both how and what type of interventionis provided,and how and from what level of the systemcare is accessed.

3. The World Bank's 1993 Development Report Investing in Health describes a health services prioritization process based on burden of disease and cost-effectivenessanalysis, resulting in the definitionof a specificpackage of essentialhealth services,to which all citizens are entitled and the precise contents of which is linked to resource availability. A number of countries in Western Europe and elsewhere have adopted such a process in prioritizing health services,developing a formal and exhaustivelist of preventiveactions, of medical and surgical interventions,and of rehabilitativeprocedures available to all citizens.

4. While definition of a specific benefits package is an interesting theoretical concept, its practical application,as seen in reviewing the experiencesin countries which have made such attempts,has shownmixed results. In fact, relativelyfew countrieshave appliedthe concept,and those that have, have been faced with political turmoil and social discontent, with few if any correspondinghealth or financial gains. In Romania, where per capita expendituresfor health total about US$72.00,only a very small benefitspackage could fit within that resourceenvelop, thereby offeringthe populationfar fewer health servicesthan what have been and continueto be theoreticallyavailable.

5. In the context of a young democracyas in Romania,the populationexpects to continueto receive health care as it isperceived to be receivedtoday: free access to all services. In such a context,the enormoustrade-offs between the need to prioritizeservices and the potentialpolitical and social impactof explicitlylisting, in a PEHS, what would amountto an extremelylimited list of services. For these reasons, the approachto prioritization proposedfor Romaniais one which is more pragmaticand context-sensitive,that is, an operationalframework for prioritizationwhich takes into accountthe need to directlyaddress the principalcauses of Romania's diseaseburden, determininghigh-cost interventions and highly cost-effectiveinterventions, determining the best treatmentsetting for cost-effectivecare, and understandingcurrent consumerdemand for various services. While it is clear that some services such as those for treatment of infectiousdisease should be included in any essential service package, Romania needs to ensure that the reimbursement,either full or partial, of health care services is decided only after a thorough

55 review and consideration of the various elements of the framework described here and of the inherent tradeoffs in such a prioritization exercise.

6. The analysis process described below seeks to provide a framework for making the difficult policy choices confronting Romania's health policymakers. Central to the framework are three considerations: the burden of disease in Romania, i.e., the relative incidence of the components of overall morbidity and mortality; the demand for interventions; and the cost- effectiveness of such interventions. A set of tables has been developed to elaborate upon these considerations, demonstrate how tradeoffs can be weighed and how interrelationships can be examined. A proposed intervention, for example, may respond to high consumer demand but be relatively cost-ineffective and may not respond to an important component of the overall BOD. Alternatively, prospective interventions that may be highly cost-effective and that would target an important BOD factor may lack high effective demand within the Romanian population and/or health medical community.

7. Various other interrelationships among these factors are obviously possible, depending on the nature of the intervention. The following analysis seeks to demonstrate how they can be systematically used to illuminate key trade-offs and policy choices. Based upon the framework presented, a number of illustrative proposals are made for interventions that would seem to merit/not merit inclusion in an eventual benefits package. The policy dialogue suggested by the analysis would make explicit the need to ration health services while providing a basis for decision-making. Depending on the extent to which the analysis may be used to guide policy, a range of mechanisms -- incentives for patients and providers -- may be employed as levers to maximize health gains and political success. The output of the burden of disease (BOD) and cost- effectiveness analysis is, therefore, a decision-making tool for structuring incentives and disincentives to encourage the cost-effective use of scarce health resources by patients and healthcare providers.

A. METHODOLOGY

8. Through the joint efforts of external consultants and Romanian counterparts, an analysis of the health status of the Romanian population was carried out by estimating the Burden of Disease (BOD), or the loss of healthy life, due to premature mortality and disability. Disability Adjusted Life Years (DALYs) - the aggregate unit of measurement for the BOD - have been calculated with Romanian 1996 mortality data, while disability calculations apply a "ratio method" of total DALYs to death DALYs from the former socialist economy region as a whole. It should be noted that since mental disorders are not death driven, they may be underestimated by this methodology.

The following types of interventions have been identified: • most demanded health services; * high cost interventions; and * highly cost-effective interventions.

For each of these three types of selected diagnoses or target diseases, the analysis added: * where the intervention takes place; * number of associated DALYs lost; * cost per episode (including drugs and medical supplies); * frequency of intervention (yearly or not); * need for complementary interventions; * effectiveness of intervention; and * whether or not the intervention interrupts the dynamic transmission of the disease.

56 Combining these two sets of information, a series of tables has been developed identifying:

* Relatively high consumer demand interventions that are or are not cost effective; potential high consumer demand interventions with high costs, but that target high BOD and are effective; and * Low demand and cost effective interventions.

Further descriptive inputs to the analysis conducted can be found in the final report "Romania Health Sector Reform", produced by The Interhealth Institute, L.L.C.

Demographic Profile

9. Romania's demographic profile is presented below. As is many of the former socialist countries, life expectancy for males in Romania hovered around 1960 levels for some time until showing noticeable declines in the early 1990s. While female life expectancy steadily increased over the same period, living longer does not necessarily mean living better: aging women suffer from more chronic conditions (and often comorbidities from such conditions), and they are more likely to live in poverty.'

Table 1: AVERAGE LIFE SPAN BY SEX IN ROMANIA, 1964-94

Year Total Male Female Population 1964-67 68.51 66.45 70.51 1972-74 69.08 66.83 71.29 1978-80 69.21 66.68 71.75 1982-84 69.77 66.98 72.61 1988-90 69.56 66.56 72.65 1992-94 69.48 65.88 73.32 Source: MinisterulSanatatii, Centrul de Calcul,Statistica Sanitara si Documentare Medicala,Anuar De StatisticaSanitara-1995, Bucharest, 1996.

10. Table 2 below shows birth and death rates in Romania during the period 1980-95. The crude death rate for the total population, which hovered around 10 per 1,000 population between 1980 and 1990 jumped to 12.0 in 1995 -- in part explained by the decrease in birth rates and increasing proportion of the population aged 50 years and older. Persons aged 50+ years represented one-quarter of the total population in 1980 and nearly 30 percent in 1995. (MOH) Between 1980 and 1995, the general fertility rate plummeted roughly 40 percent. The annual rate of natural increase in Romania was estimated at minus 0.2 percent in 1997; similar negative growth rates prevail in several neighboring countries such as Bulgaria, the Czech Republic, Hungary and Russia. (Population Reference Bureau, 1997)

' TheRomania Poverty and SocialPolicy Study (Reportno. 16462-RO, April 1997)found that among pensionersin Romania,the poorestare householdsheaded by womenliving in rural areas,receiving low agriculturalor survivorpensions. Elderlyrural womenwith only farm incomeand no pensionare even more vulnerableto poverty. 57 Table 2: BIRTH AND DEATH RATES IN ROMANLA,1980-95

Rate 1980 1985 1990 1995 Live Births (per ,000Population) 180 15.8 13.6 10.4 General Fertility 74.8 65.1 56.2 41.2 (per 1,000 women aged 15-49 yr.) Deaths (per 1,000 population) 10.4 10.9 10.6 12.0 Infant Deaths (per 1,000 live births) 29.3 25.6 26.9 21.2 Source: Ministerul Sanatatii, Centrul de Calcul, Statistica Sanitara si Documentare Medicala, Anuar De Statistica Sanitara-1995, Bucharest, 1996.

BOD Results

11. Results of the BOD analysis in Romania presented in the table below reveal that the overwhelming majority of DALYs are lost to causes associated with three critical health behaviors: consumption of alcohol, consumption of tobacco, and dietary practices. Of DALYs lost to the top ten causes, more than half are attributable to conditions related to the heart and circulatory system, followed by 25 percent accounted for by complications related to alcohol consumption. Among the few infectious diseases of prevalence, tuberculosis is gaining ground, especially since 1985 and among children. The number of cases of tuberculosis among children 0-14 years of age rose from 7.9 per 100,000 in this same age group, in 1985 to 21.0 in 1995. (MOH)

Table 3: TEN MOST COMMON CAUSES OF DALY LOSS IN ROMANIA, 1996

DALY % of % of All ICD Cause of DALY Loss Loss Top 10 DALYs 477-481 Cerebrovascular Disease 858,810 21.6 13.5 458-462 Ischemic Heart Disease 998,137 25.1 15.6 306 Alcohol-Related Mental Disorders 654,253 16.5 10.3 578-583 Cirrhosis, Chronic Hepatitis 278,028 7.0 4.4 378-397, Nervous and Musculo-Skeletal 222,175 5.6 3.5 430-436 Disorders 498-521 Acute Respiratory Infections 218,027 5.5 3.4 453-457 Hypertensive Disease 195,486 4.9 3.1 465 Chronic Cor Pulmonale 191,926 4.8 3.0 483-487, Other Vascular Disease 189,466 4.8 3.0 489-494 482 Atherosclerosis 168,016 4.2 2.6

SUBTOTAL 3,973,687 100.0 62.4 Other Causes 2,399,422 - 37.6

TOTAL OF ALL CAUSES 6,373,109 - 100.0 ANALYZED Source: MOH 1996 mortality data, and calculations by the BOD Work Group.

12. The figure below show the breakdown of DALYs by major disease classifications. Of the ten top causes of DALY loss, over half is attributed to conditions related to the heart and circulatory system (primarily cerebrovascular disease and ischemic heart disease).

58 Figure 1: PERCENTAGE OF DALYs LOST TO MAJOR DISEASE CLASSIFICATIONS IN ROMANIA, 1996

ObstPeri/Congen 2%, Inf/paras Genitor-Urinary 2% 2% Hemat./Nutr 3% Neurological Heart-Related 4% 130% Gastro-Intestinal 5% Respiratory 6%

Other

Cerebrovascular 14% Alcohol-related Tumors 10% 11%

Most Demanded Services

13. A list of health services with high levels of consumer demand, corresponding to 15 target diseases or conditions, is presented in Table 4. On the basis of high demand alone, all such services could be justified as services included in any benefits package. However, other factors (e.g., medical effectiveness, cost effectiveness, the BOD associated with individual target diseases) must be taken into consideration. Among the most demanded services, there is a wide range of DALYs lost to target diseases: from 830,121 for chronic ischemic heart disease, to 55,937 for tuberculosis. (Table 5 shows the percentage of DALYs lost for each condition.)

14. There is also great variation in treatment costs per case of these most demanded services, from $339 for insulin-dependent diabetes mellitus to $39 for outpatient treatment of essential hypertension. In weighing costs, however, it is important to keep in mind the possible need for complementary interventions.

59 Table 4: Most demanded health services - DALYs lost, Cost per case, and Effectiveness

Cost Interrrupts Disease/ Intervention Setting DALYs Lost per LOS Yearly Complementary Effec- Dynamic Condition IP/OP Case (days) interven- Interventions tiveness Trans- US$ tion needed mission Abortion Abortion w/ local IP 111,739 45.00 No No No anesthesia Essential hypertension Antihypertension drugs IP 595,509 62.00 4.6 Yes Yes ++/... No Antihypertension drugs OP 595.509 39.00 Yes Yes ++/+++ No Chronic ischemic heart Betablockers (1 yr) IP 830,121 148.00 5.33 Yes Yes No disease Betablockers (I yr) OP 830,121 81.00 Yes No ++ No Chronic obstructive Antibiotics & IP 113,209 46.00 9.91 Yes Yes ++N pulmonary disease broncodilators Chronic hepatitis Lab analysis IP 278.028 98.00 4.95 No Yes Yes Trophic drugs OP 278.028 139.00 No Yes ++ Yes Tuberculosis Chemotherapy IP 55,937 258.00 67.20 No No .... Yes Chemotherapy (4 mos) OP 55,937 37.00 No No .... Yes Insulin-dependentdiabetes Insulin IP 225,427 339.00 3.1 Yes Yes No Insulin OP 225,427 14.00 Yes No ++ No Non-insulin dependent Sulfonylurea OP 69,871 50.00 Yes No ++ No diabetes Biaguaniaden- OP 69,871 29.00 Yes No ++ No antidiabetes drug (I yr) Bone fracture Orthopedic surgery IP 36,965 92.00 15.8 No No ++ No Bronchitis/Pneumonia Antibiotics IP 218,027 78.00 14.04 No No No Antibiotics OP 218, 027 52.00 No No ... No Cerebrovascular accident Supportive therapy IP 858,810 50.00 4.8 No Yes t No Hepatitis A Vitamins, trophic drugs IP 434 105.00 11.8 No Yes + No Alcoholism Drug therapy IP 654,253 126.00 24 No Yes 4 1- No Depression Drug therapy IP 275,000 50.00 6.41 No Yes ++ No Acute appendicitis Surgery 1P 5,291 120.00 5.9 No No No

60 Notes on Table 4.

1. Abortion. Target DALYs are congenital and obstetrical related.

2. Essential Hypertension-Antihypertension Drugs. Outcome is very dependent on patient compliance; it is assumed that 25 percent of ischemic heart disease, 33 percent of cerebrovascular disease, and 20 percent of arteriosclerosis are due to hypertension.

3. Chronic Hepatitis. Lab analysis tells patient that s/he is infective; in the case of outpatient treatment with trophic drugs, it is assumed that no lab test was completed, since this must be done in a hospital.

4. Insulin-Dependent Diabetes Mellitus - Insulin Treatment as Outpatient and Inpatient. Outcome is extremely dependent on patient compliance; target DALYs assume 10 percent of ischemic heart disease.

5. Non-Insulin Dependent Diabetes, Outpatient and Inpatient Treatments. Outcome is extremely dependent on patient compliance; target DALYs assume 1 percent of ischemic heart disease/cerebrovascular and 1 percent of nervous system diseases are due to diabetes.

6. Bone Fracture - Orthopedic Surgery. Target DALYs are 25 percent of multiple trauma and 15 percent of head, neck, and limb trauma (ICD 879-896, 909-938).

7. Depression - Antidepression Drugs. DALYs are an underestimate, due to lack of deaths reported as depression. DALYs are calculated based on the assumption that one-quarter of I percent of 22 million Romanians will become depressed at a 20 percent disability, and the depression will occur at middle age.

8. Cost per Episode for Inpatient Services . This was derived from information available for 1997 on total drug expenditure per diagnostic (ICD9) in Pitesti Hospital. Located in the south-central district of Arges, Pitesti Hospital falls in the middle or moderate expenditure range. Total costs of non-surgical interventions have been calculated assuming that drugs correspond to 8.7 percent of total costs for non-surgical services and 17 percent for surgical services. This assumption is based on the results of a DRG study on internal medicine and surgical services, carried out by USAID in the Ploiesti District Hospital. For selected ICDs, the study estimated the particular share of drugs relative to the total cost, e.g., 4 percent for chronic ischemic heart disease, 9 percent for obstructive pulmonary embolism and appendicitis, and 8 percent for insulin-dependent diabetes.

9. Outpatient Costs by Case. These costs were calculated with the assistance of Dr. G. Popovici (general practitioner) and Ms. V. Amaronic (economist), based on current medical guidelines and the price of drugs made in Romania. Pharmaceuticals manufactured domestically represent 80 percent of the total volume of drugs consumed in Romania. Outpatient costs for insulin-dependent diabetes patients have been derived from the workshop on diabetes management organised by the IMSS in May 1998. The cost per diabetes case is based on guidelines from the Center for Diabetes at the University Hospital in Bucharest.

10. Inpatient Services and Outpatient Services. Inpatient services are denominated according to 1997 prices, and outpatient services are expressed in terms of 1998 prices. Dollar equivalents have been calculated assuming exchange rates of 8500 lei = US$1 in 1998 and 71 00 lei = US$I in 1997.

61 Table 5: FIFTEEN DISEASES OR CONDITIONS ASSOCIATED WITH THE MOST DEMANDED HEALTH SERVICES AND DALYs LOST IN ROMANIA, 1996

DALYs % DALYs Target Disease Lost Lost ..... _ ... )_ .. - ... .. ~~~~~~~~~~~~~..._...... _...... - - -...... _...... -...... Abortion 111,739 1.7 Essential Hypertension 595,509 9.4 Chronic Ischemic Heart Disease 830,121 13.0 Chronic Obstructive Pulmonary 113,209 1.8 Disease Chronic Hepatitis 278,028 4.3 Tuberculosis 55,937 0.9 Insulin-Dependent Diabetes Mellitus 226,427 3.5 Non-Insulin Dependent Diabetes 69,781 1.1 Bone Fracture 36,965 0.6 Bronchitis/Pneumonia 218,027 3.4 Cerebrovascular Accidents 858,810 13.5 Hepatitis A 434 0.0 Alcoholism 654,253 10.3 Depression 275,000 4.3 Acute Appendicitis 5,291 0.1 Subtotal 4,329,531 67.2 Other Causes 2,043,578 32.1 TOTAL 6,373,109 100.0 Source: MOH 1996mortality data and calculationsby the BODWork Group.

15. Data for most demanded services, including diagnoses for more than 200 cases during the first six months of 1997, were derived from information available for 1997 from Pitesti District Hospital.2 According to this information, the main causes of hospitalization were (in order of frequency): abortion and related complications; diseases of the circulatory system such as hypertension, ischemic heart diseases, and chronic cor pulmonale; infectious diseases, such as chronic hepatitis, hepatitis A and tuberculosis; endocrine and metabolic diseases such as diabetes; respiratory diseases such as bronchitis; and mental and behavioral disorders (e.g., depression, and behavioral problems related to alcohol consumption). Most of these same conditions/diseases are the main causes of outpatient consultation since they are chronic in nature. Factors contributing to the high demand for the first two causes of hospitalization, abortion and circulatory diseases, merit exploration.

2 A districthospital was selected,since it more accuratelyrepresents actual use of resources,compared to teaching hospitals that provide more sophisticated care, and to rural hospitals that provide more basic care. The MOH doesnot publishinformation on the main causesof hospitalizationor outpatientcare.

62 Figure 2: MOST COMMON CAUSES OF HOSPITALIZATION AT PITESTI DISTRICT HOSPITAL, 1997 (number of cases)

Abortion _ 1570 Chron Hepatitis 1174 Chr Obs Pulmonary 1108 TB _ 897

Diabetes-insul _ 612 Fracture - 562 Hypertension 524 Cerebrovascular acc. 503 Pneumonia 458 HepatitisA 278 Depression 263 Bronchitis 248 Appendicitis 244 Alcoholism 201

0 200 400 600 800 1000 1200 1400 1600

16. Hospital expenditures amounted to 56 percent of MOH recurrent expenditure in 1996. Inpatient services are provided by four types of hospitals: rural, municipal, district, and specialized units in teaching hospitals. According to annual statistics published by the MOH, the average cost per episode of hospitalization at national level was US$107 in 1996 (329,374 lei). The weighted average cost for inpatient care of the 14 most demanded inpatient services is US$88, and the weighted LOS is 13 days. Costs vary between US$258 for 67 days in hospital to treat one case of TB and US$14 to hospitalize a diabetic patient for three days3

17. Abortion, the most demanded intervention, costs about US$45 for the hospital; patients pay US$7 (60,000 lei) to the hospital and between US$6-12 to the physicians for "under-the-table" payments. In total, patients' "copayments" for abortions range between US$13-19. Private clinics, on the other hand, perform abortions on an outpatient basis and charge between US$12- 35. There is a nine-fold price differential between the cost of an abortion and the estimated cost of US$5 for a complete year of protection (for pills, an IUD, or injectables) against conception.

18. The treatment of one case of hypertension, including hospitalization, costs about US$101 per year, US$62 for 4.6 days of hospitalization, and US$39 for one year of outpatient treatment. There is a trend at the specialized cardiovascular unit at the University of Bucharest to perform high-tech surgery in order to keep pace with the latest advances in medical technology throughout the developed world. Eighty percent of drugs and ancillaries (e.g., tubing and intubation tubing)

3 Costsper episodevary considerablyby level. Accordingto a studyconducted by USAIDin 1995,the averagecost per episodeat a teachinghospital (Cluj-Napoca) was US$215, compared to US$145at a districthospital (Ploiesti), and US$103at a rural hospital(Campina). Variations were noted in resource expendituresby the same diagnostichospitals, owing to differencesin salaries,drug utilization practices, and averagelengths of stay.

63 used here are imported. This trend is a response to the high loss of healthy years of life (DALYs) to cardiovascular diseases and also to the high demand for cardiovascular services at the hospital and clinic levels. The cost of more sophisticated interventions is, however, more than 18 times greater than the interventions at the district level. At the Surgical Cardiovascular Center in Bucharest that treats patients with severe cardiovascular problems, the average cost per case for drugs and ancillaries (excluding a room and labor costs -- not to exceed US$10 per day) is about US$1,852.

19. The different types of interventions--counseling, drug-therapy and surgery--are the solutions for problems at different stages. Surgery, such as a coronary artery bypass, is extremely costly and associated with far less cost effectiveness than prevention (i.e., no smoking). Similarly, lung chemotherapy for lung cancer is expensive and cost ineffective. In general, the importance, in terms of effectiveness and cost effectiveness, of addressing potential problems in the earliest stages possible cannot be overemphasized.

High Cost Interventions

20. High cost interventions of two types are presented in Table 6:

(a) those with replacement clinical interventions at outpatient or even district hospital level and high BOD (e.g., coronary artery bypass surgery at early stages of the disease), or (b) interventions which really cannot be treated at the outpatient or general hospital level and have low BOD (e.g., AZT for AIDS and valve replacement).

Costs per episode for all interventions in Table 6 exceed US$1,000, with the exception of insulin- dependent diabetes, at $339 per episode. These interventions represent the greatest financial burden for the MOH and should be carefully examined prior to inclusion in any eventual benefits package.

64 Table 6: SELECTED HIGH-COST INTERVENTIONS

Cost/episode Yearly Complemen- Interrupts Diagnosis Intervention Setting DALYs Lost (US$1998): inter- tary inter- Effective dynamic Drugs & vention ventions transmis- Supplies sion Ischemic heart disease Coronary artery bypass Cardiovascular 998,137 1,443.00 No Yes ++ No clinic/university hospital Aortic valve disease Aortic valve replacement Cardiovascular 452 2,603.00 No Yes/No + No clinic/university hospital Mitral valve disease Mitral valve replacement Cardiovascular 1,056 2,585.00 No Yes/No + No clinic/university hospital Acute MI/Unstable angina Thrombolysis drugs (3 Cardiovascular 830,121 1,175.00 No Yes ... No weeks) clinic/university hospital Acute renal failure Pertitoneal dialysis (1 yr) Diabetes 208,626 8,471.00 Yes Yes + No clinic/university hospital Insulin-dependent diabetes Insulin treament (1 yr) Diabetes 208,626 339.00 Yes Yes + No clinic/university hospital AIDS AZT + 2 other drugs (I AIDS hospital 15,779 1,412.00 Yes Yes ++ No yr)

Notes:

I . Aortic Valve Replacement. It is assumedthat 30 percentof cardiacvalve diseaseis due to aorticvalve. 2. Mitral Valve Replacement. It is assumedthat 70 percentof cardiacvalve diseaseis due to mitralvalve. 3. Atrial Septal Defect Repair for Mitral Valve Disease. Calculationsare basedon the assumptionthat 25 percentof circulatorycongenital disease is atrial septaldefect. 4. AIDS. Calculations/effectivenessare dependenton the use of proteaseinhibitors.

65 Cost-Effective Interventions

21. Interventions with high cost effectiveness are presented in Table 7. Since associated costs of treatment are relatively low, even if medical effectiveness is poor and demand is low, cost-effective results may be obtained by including these interventions in a benefits package. Treatment of most target diseases in Table 6 is easily justifiable given the extensive DALY loss associated with smoking and poor diets.

Table 7: Selected Highly Cost-Effective Interventions

Diagnosis Intervention DALYs Effec- Cost (per # of Yearly inter- Lost tiveness patient per year visits vention -- US$ 1998) Maternal/Perinatal Sexuality 111,739 ++++ 0.50 2 No mortality education post abortion

FP (oral 111,739 ++++ 9.00 1 Yes contraceptives)

FP (IUD) 111,739 ++++ 2.00 1 Yes

FP (injectable) 111,739 ++++ 4.00 4 Yes

Ischemic heart Smoking 698,704 + 1.00 4 No disease cessation Cerebrovascular advice disease Lung cancer COPD

Cardiovascular Diet/Nutritiona 177,645 + 0.50 2 No disease I advice Cerebrovascular disease Non-insulin dependent diabetes

Source: Instituteof Health ServicesManagement

Note: No complementary interventions are needed except in the case of sexuality education. Smoking cessation and diet/nutritional advice assume that the patient was successful in the first year of counseling in adopting new behaviors.

Notes: I . Maternal/PerinatalMortality - SexualityEducation post Abortion. Needs complementaryintervention of traditionalfamily planning,in caseabstinence is not effective. 2. SmokingCessation Advice. It is assumedthat 30 percentof ischemicheart disease, 15 percentof cerebrovasculardisease, 95 percentof lung cancerand 90 percentof COPDare due to smoking. 3. Non-Fat,Low-Salt Diet Advice. It is assumedthat 10 percentof ischemicheart disease and 5 percentof cerebrovascular diseaseare due to diet/saltdietary problems, and 50 percentof non-insulindependent diabetes mellitus is due to problemsof diet.

66 Cost effectiveness of individual interventions takes into account: (i) the inherent benefit of one-time interventions, such as surgery for appendicitis, as opposed to diabetes which requires insulin treatment on an ongoing basis; and (ii) that most of the diseases listed in Tables 4 and 5 may be treated with different and/or complementary interventions in outpatient or inpatient settings, or both. For example, hypertension cannot be managed solely on an in-patient basis; outpatient follow-up is vital.

SUMMARY

22. The burden of disease and demand analysis points to a vital need for clinical preventive services. Clinical services such as family planning and counseling on avoidance of risk behavior, e.g., tobacco and alcohol consumption, could contribute significantly to reductions in unwanted pregnancies and heart- related diseases, respectively. For this reason, counseling for family planning and smoking cessation should be explicitly included in any list of primary health care services. Moreover, providers need to be motivated to promote outpatient care, and an incentive system should encourage providers to take cost into consideration when making clinical decisions.

23. Cost-effective clinical interventions would lessen the demand for the two most frequent causes of hospital admission: abortion and circulatory problems. Indeed, promoting use of modern contraceptives would save valuable resources for the MOH while improving reproductive health outcomes for Romanian women. As mentioned previously, there is a nine-fold price differential between one abortion, costing about US$46, and one year of protection with modern contraceptives, approximately US$5. In addition to making contraceptives available, well-targeted IEC programs are also key to change perceptions and promote demand for modem contraception. IEC activities needs to target not only adult men and women, but adolescents as well as the full range of health providers, social workers, and teachers.

24. As concerns smoking cessation counseling, a recent meta-analysis of 39 clinical trials in the United States that found cessation rates averaging 8 percent after six months, and 6 percent at the end of one year. The key elements of effective counseling appear to be consistent and repeated advice to stop smoking, a specific quit date, and a follow-up contact or visit.

25. It is important to note that knowledge of the magnitude of the burden of certain diseases or conditions is necessary but not sufficient for prioritizing health services. There are many conditions with a high BOD, such as ischemic heart diseases, which, unfortunately, are difficult to alter. For this reason, much depends on the availability of an effective intervention at an acceptable cost. Within the context of health sector reform and of the new insurance-based health services delivery system in Romania, the foregoing decision-making methodology seeks to provide a basis for determining what health interventions should be fully, partially, or not reimbursed by national health insurance. Medical interventions can reduce the case fatality of diseases or prevent complications of chronic diseases; preventive interventions, on the other hand, can reduce the incidence of disease. Both types of interventions have an important role to play in Romania's future health policies.

26. Positive incentives should be developed for health services that are cost effective, that address conditions which account for a large share of the BOD in Romania, that have low consumer demand (e.g., incentive payments to physicians, reduced cost sharing). Negative incentives should target interventions that have a high consumer demand, but low cost-effectiveness, high cost, and address a low share of the BOD (e.g., cost sharing, waiting lists, holding constant spending on certain specialist/tertiary care services and clinical departments). A benefits package should receive some funds from co-payments at hospital levels. Savings result from holding constant certain categories of spending at specialist hospitals that should be used to increase services with current low demand, moderate or high cost-effectiveness, and high BOD.

67 B. DEFINING A BENEFITS PACKAGE

27. The implications of applying BOD and cost-effectiveness analysis for definition of an eventual benefits package are discussed below. While decisions regarding services to be included in such a package may be based on the impact on the target BOD, cost-effectiveness, and consumer demand, some recommendations are made for financial incentives that may be required for implementation.

• Infectious Diseases. It is recommended that these be included in a package, including drugs, except where drugs do not decrease the time that a patient is infectious.

Justification: Interruption of dynamic transmission, high consumer demand and typically cost effective treatment (either on an outpatient or inpatient basis)

Financial Incentive: None.

* Chronic Diseases. These should be covered on an outpatient basis (except copayment on drugs) and an inpatient basis.

Justification: High BOD, minimum, moderate cost-effectiveness (although higher in an outpatient setting)

Financial Incentive: Incentives for patients to seek outpatient care.

When supplemental inpatient care is required because of lack of patient compliance with prescribed regimen, then patients should contribute to the cost of hospitalization. To further reinforce the transfer of accountability from the State to the individual and to minimize out-of-pocket costs, discounts on co-payment for chronic disease hospitalization could be granted to patients who participate in outpatient visits. Patients who refer themselves to a hospital, without authorization from the family practitioner, should expect an increase in their co-payments; emergency situations obviously constitute an exception to this practice.

* Accidents/Injuries and Simple Surgery. These interventions should be covered (with perhaps a slight co-payment on drugs and ancillary services).

Justification: Mild to moderate BOD, with acceptable cost-effectiveness.

Financial Incentive: None.

* Specialist Care for High BOD Interventions (e.g, bypass surgery). It is recommended that such care be included in a benefits package, but with co-payments on surgery and bed days.

Justification: High consumer demand and high BOD, low to moderate cost effectiveness.

Financial Incentive: Waiting lists and holding constant spending levels for certain specialist care.

68 * Specialist Care for Non-High BOD Interventions. For such interventions that are cost effective (e.g., valve replacement), coverage should be provided, with co-payments on surgery and bed days.

Justification: High demand, with medium to high cost effectiveness and low BOD.

Financial Incentive: None.

* Specialist Care for Non-High BOD Type and Cost Ineffective Interventions. Included in this category, for example, would be AZT treatment for AIDS, which should not be covered.

• Public Health Care. Family Planning . Such services should be covered with very small to no co-payment on drugs or IUDs.

Justification: Fairly high target BOD, excellent cost effectiveness and cheaper than abortion, with the same outcome of avoiding pregnancy.

Financial Incentive: Mild incentives to providers of family planning services, IEC for young women informing them about resources and clinics.

Anti-Smoking Assistance. All such services (especially smoking cessation counseling) should be covered with no co-payment, except nicotine patches which should have a small co-payment.

Justification: High target BOD, mild - medium cost effectiveness, low consumer demand.

Financial Incentive: Incentives to providers and possible exemptions on VAT taxes (often as high as 22%) to make products such as nicotine chewing gum or patches available without a prescription.

28. The prevalent burden of disease in Romania and an analysis of the demand for services underscore the need to coordinate clinical preventive services with health promotion activities, in order to reduce risk-taking behavior, such as smoking and alcohol consumption and to contain the related costs of medical care. Health policy and resource allocation in Romania should target programs that help the population control smoking and drinking and develop better dietary habits. The GP or the family medical practitioner can play a key role in implementing such programs, and their payment package should include bonuses for reaching program objectives in helping patients to stop smoking and improve their eating habits. In addition, society at large, through its representative institutions, must assume responsibility for controlling actions that do not pertain directly to the purview of the health sector authorities but that affect the health of the population negatively (e.g., legal climate and regulations on smoking and drinking, road maintenance and vehicle inspections, environmental health standards, occupational health controls, safe water and food, hygienic environment).

Annex4a.doc

69 Annex 4b Public Health and Disease Control Priorities

1. Problemsand opportunitiesfor interventions

1.1. An examinationof the burdenof disease,risk factors and approachto public health and disease leadsto two sets of conclusions:

* First, in terms of the size and distributionof the problem:(a) a large percentageof DALYs lost is attributableto non-communicablediseases and tumors, (b) infectiousdiseases remain significant,including tuberculosis and hepatitis;and (c) abortion and circulatoryproblems are the two most frequent causes of hospital admission (InterHealth Institute, 1998). These observationsare not unique to Romania,but are part of the epidemiologicalprofile observed in the formerly socialist countries of Central and Eastern Europe (Adeyi et al., 1997; Bobadillaet al., 1997;Notzon et al., 1998). Nevertheless,local studiesindicate increases in the prevalenceof STDS,drug abuse, smokingand obesity- a risk factor for hypertensionand diabetes.

* Second, society as a whole, and the health system in particular, have failed to respond effectivelyto the problemsof avoidablemorbidity, premature mortality and disabilityarising from these causes. This is failure of the choice of interventions,the institutionsframework for implementation,and the effectiveness of implementation. This summary must be tempered by the recognitionof a few good initiatives. The ReproductiveHealth Program, developed in collaborationwith UNFPA, is an example of an effective intervention to decreasethe incidenceof abortionover the past five years in Romania4 There are promising interventions in HIV/AIDS health education (in collaborationwith UNICEF) and Health Promoting Schools(in collaborationwith WHO/EURO),as well as a nascent Tuberculosis Control Program based on the strategy of Directly Observed Therapy, Short-Course. The recently approved Public Health Law provides opportunitiesfor a new, community-based, intersectoralapproach to public health.

1.2. A successfulpublic health and disease control initiative in Romania requires: (a) policy-based interventions,particularly against non-communicablediseases; (b) improvingpublic awareness of and support for public policies to reduce exposureto risk factors; (c) an effective institutionalframework for implementation; (d) reduced populationexposure to risks of premature morbidity and mortality from non-communicablediseases and injuries;(e) controllingmajor communicablediseases; and (f) developinga professionalculture of policies and programsbased on scientific evidence and explicit assumptions. These are applicableto Romaniaand consistentwith ideas advocatedin the WorldBank's Sector Strategyfor Health, Nutritionand Population(World Bank, 1997). In addition to the global body of knowledge,Romania could benefit from more specificregional experiences - indicatingthat switches in diet from animal to vegetablefat and increasedsupplies of vegetablesand fruits could have significant impactin decreasingcardiovascular morbidity and mortality(Zatonski et al., 1998).

4 TheWorld Bank supported Romania in thisprocess, through the Health Rehabilitation Project (Loan 3409-RO).

70 2. Priority interventions for disease prevention and health promotion

Based on need, implementation capacity, system and health impact, possibilities for leveraging resources and sustainability, the following priorities of disease prevention and health promotion interventions have been identified by Romanian and foreign experts (InterHealth Institute, 1998): a. Tobacco control b. Healthy schools c. HIV/AIDS education d. Control of high blood pressure e. Prevention of motor vehicle accidents f. Countrywide non-communicable disease control program (CINDI) g. Tuberculosis prevention and control h. Nutrition i. Physical activity j. Drug abuse

3. Policy and institutional support

Policy and institutional support should be ensured through the following means, which are discussed in more detail in Section 5 of this Annex: a. A policy paper on health promotion and disease prevention: "Towards a Healthy Romania". b. Training, partnerships and capacity building. c. Management, coordination, and evaluation. d. Health promotion initiatives grants.

4. Outline of implementation plans for public health and disease control priorities

Draft implementation plans and cost estimates have been developed for some of the priorities identified above. Prior to implementation, they need to be more specific, with emphasis on institutional support, responsibilities, expected benefits and risks.

4.1. Strengthening Public Health and Disease Control Infrastructure.

Emphasis would be placed upon (a) capacity building through technical and management training and (b) surveillance and monitoring systems, both disease and behavioral. These are key, especially to NCD control. At a minimum, activities would include a National Health Interview Survey, including physiologic measurements, perhaps every 5 years. In addition, focused behavioral surveillance of youth and adults every two or three years, with inclusion of modules on knowledge, attitudes and practices, would be needed. It is important that accurate mortality data are collected and that public health data are reported and used for decision making.

4.2. Tobacco Control

Aim: Implement a comprehensive, intersectoral approach to reduce the prevalence of tobacco use from 40 to 30 percent by 2005.

Approach: Support enforcement of the anti-tobacco law (legislation), including restrictions/ban on advertising, and high prices through carefully determined increases in tobacco tax. Establish an effective intersectoral coalition to coordinate efforts and promote advocacy,

71 social marketing (health benefits, smokers' rights), public and professional education, and accessibility to smoking cessation programs. Develop a sustained effort to inform the public and NGOs about the health impact of tobacco - and to counter the misinformation from the tobacco industry.

Partners: MOH (National Center for Health Promotion, districts), College of Physicians, Nursing Association, Cancer and Cardiovascular Disease Associations, Soros Foundation, Youth for Youth, Anti-tobacco League, and World Vision.

4.3 Healthy Schools

Aim: Provide access to effective health education and healthy environments for children and youth in 1,000 schools (of the 23,000 currently in Romania) by 2005 and thereby reducing the prevalence of unhealthy behavior in children and adolescents, including smoking, drug and alcohol use, STDs, nutrition, and sedentary life styles.

Approach: Build on the MOH -Healthy Schools module, currently being piloted in 29 Romanian schools. These modules provide a comprehensive approach to school health education, but require outcome evaluation. Pending the results of the evaluation and after modifying the modules, as appropriate, educational resources will be produced and delivery system organized to disseminate the modules to 1,000 schools by 2005.

Partners: European Network of Health Promoting Schools, WHO EURO, Ministry of Youth, Youth for Youth Association, Soros Foundation, UNICEF, Local NGOs, churches, National Council of Youth.

4.4. HIV/STD Education

Aim: Raise awareness and knowledge among the population and encourage preventive behavior. Examine best practices and develop Romania-specific approaches to influencing government policy and individual choices, removing social constraints to safe behavior and caring for persons with HIV/AIDS.

Approach: Pilot, evaluate and disseminate, a training-of- trainers program to educate through, small group session, about 300 community leaders and influential individuals to spread the prevention message. Contingent upon a positive evaluation, the program would be phased in over a four-year period to 42 health districts, with the goal of reaching 30,000 individuals in high-risk groups over a seven-year period.

Strengthen and sustain, over a five-year period, a national public education program delivered via media in close collaboration with the existing Reproductive Health Program.

Conduct a knowledge and awareness population survey, prepare a social marketing plan and educational materials to support the development and subsequent evaluation of the preceding two stages.

Partners: Society of Contraception and Sex Education, Association Against AIDS, Soros Foundation, World Vision, UNAIDS, UJNFPA,UNICEF, district family planning units, STD specialists, media.

72 4.5 National Program to Control High Blood Pressure

Aim: Develop and implement a comprehensive strategy for the prevention and control of high blood pressure, stroke and heart disease.

Approach: Establish an inter-ministerial and interagency coordinating committee to marshal action of key stakeholders in the public and private sectors, including: development and dissemination of clinical prevention and treatment guidelines (emphasis on cost-effective non-pharnacological management); professional education; public education targeted to high-risk groups; work-site programs (screening, linkage to treatment and counseling).

Partners: Specialists involved in health promotion, disease prevention and clinical sectors in the MOH, together with the College of Family Physicians, Pharmaceutical Association, Media, Nursing Association, and Trade Unions.

4.6. Prevention of Motor Vehicle Accidents

Aim: Reduce road accidents and fatalities by promoting seat belt use, taking action against drinking and driving, and working with transport authorities to improve road safety conditions.

Approach: Create an interministerial, interagency coordinating group to advocate the application of current legislation and plan a sustained public education and enforcement campaign.

Partners: Ministry of Transport, Police Departments, media (TV, radio), insurance companies, and driving schools.

4.7. Countrywide Integrated Non-communicable Disease Intervention (CINDI) Program

Aim: Build capacity at the district level for implementation of community-based, integrated approaches to the prevention by promoting joint action on the risk factors responsible for most non-communicable disease (e.g., cardiovascular, types of cancer, chronic obstructive pulmonary disease).

Approach: Support the implementation of the WHO-Countrywide Integrated Non-communicable Disease Intervention (CINDI) Program protocol, beginning in Timisoara with later extension to two other districts. Such support would cover the implementation of risk factor surveys and evaluation of a core set of interventions, e.g., enhancement of preventive practices of primary care physicians, public education, prevention and control of high blood pressure and diabetes.

Partners: Professionals in health promotion, disease prevention, clinical and pharmaceutical associations, Media, Nursing Association, WHO/EURO, and CINDI Countries (23 in Europe, plus Canada).

4.8. Tuberculosis Prevention and Control

Aim: Promote patient compliance with treatment and raise the knowledge and awareness for prevention of at-risk groups.

73 Approach: Directory Observed Therapy, Short-Course (DOTS). Ensure effective planning, infrastructure and management (WHO, 1997; Grange and Zumla, 1997; Ignatenko, 1997, MOH Romania, 1997). Develop and distribute, at district level, a protocol to improve patient compliance, including educational materials and training workshops. Produce and diffuse a public education campaign (TV, radio, print) targeted to high-risk groups, in two points over a 5-year period.

Partners: Staff of MOH units responsible for health promotion, disease prevention and public health; medical associations, NGOs and international agencies.

5. Policy and institutional support

5.1. An Integrated Policy for Health Promotion and Disease Prevention: "Towards a Healthy Romania"

Aim: Present to the MOH and the Romanian Government, for endorsement at the highest policy level, a consensus document assuring political priority and visibility, plus prompt, sustained investment of promotion and prevention in the context of health reform.

Approach: Establish an intersectoral group of key stakeholders, arrange consultations with relevant agencies at the central and district levels, obtain research information required to support development of an evidence-based health policy; publish and market the report.

Partners: As core partners, the College of Family Physicians, NGOs, international agencies, Soros Foundation, private sector.

5.2. Training, Partnerships and Capacity Building

There are numerous areas where disease prevention and health promotion programs would benefit from training at academic institutions (mostly abroad) or/and on-the-job training, including the following: * Needs assessments - epidemiological and community based, or as perceived by a target population * An assessment of capacity and readiness of various partners or organizations to undertake health promotion activities * Community organization and collaboration * Comprehensive planning and evaluation of health promotion experience and research * Models of population and public health approaches to prevention and promotion * Systematic/organized advocacy * Program evaluation (outcome and process) * Leadership and team building * Fundraising and resource mobilization * Coalition creation and management * Proposal writing * Computer and management information * Social marketing * Problem/conflict resolution * Political action to influence policies and initiate changes.

74 * Management of change * Negotiations skills * Making technical presentations * Strategic and operational planning * Qualitative and quantitative analysis

5.3. Management, Coordination and Evaluation

Aim: Ensure efficient management of resources, by providing financial resources to establish information systems, permitting coordination and (affordable, practical) process evaluation and tracking of program activities. This program component is essential, if there is to be accountability for resource utilization relative to program objectives.

5.4. Health Promotion Initiatives Grants

Aim: Enable innovative health promotion initiatives at the local level, in accordance with priority areas and population groups designated by the MOH at national and district levels. The focus of the grants program is to develop practical knowledge for health promotion, especially knowledge that is transferable across the country. Research and service delivery activities should not be within the scope of the grants.

Approach: Administer at the central level, but remain responsive to district priorities. Terms of reference are to be developed, including definition of eligibility criteria (for municipalities, NGOs, health and educational institutions); involvement of target populations in the needs assessment project planning; evaluation requirements; and procedures for administrative accountability. It is envisaged that one share of the resources would be devoted to national projects and another to projects based at the level of districts of health.

Partners: International agencies, Soros Foundation.

6. Institutional capacity for implementing health promotion projects

Health promotion was recognized as a government initiative in 1990. A World Bank loan was instrumental in creating the existing health promotion structure. Health promotion in Romania is organized within the MOH at the central level through the Department of Disease Prevention and Health Promotion (two positions), at the district level, trough the Inspectorate of Public Health (about 80 positions), and at the National Center for Health Promotion (NCHP), in the MOH (14 positions). In addition, there are health promotion resources (about 8 position) in four institutes of health concerned with research.

The NCHP is responsible for technical assistance, provision of information and resources, commissioning relevant research, training, collaboration with mass media, targets for health promotion, and reorientation that includes health promotion, especially at the level of primary care. The health promotion teams at the district level are responsible for implementing health promotion activities. The Directorate of Health Promotion in the MOH's Department of Preventive Medicine and Health Promotion sets priorities and determines health promotion policy

75 The successful development and implementation of health promotion in Romania depends on the existence of appropriate organizational arrangements to plan, implement and monitor activities. While there is significant capacity at the National Center for Health Promotion and limited capacity at the district levels, it appears that implementation of the Health Insurance Law might eliminate or reduce resources available at the district level and sever their links to technical support that might be provided by the National Center for Health Promotion. The issue is compounded by the fact that there are no statutory requirements for district health authorities to implement a core set of health promotion activities. Hence it would be advisable that, as part of future technical assistance, an organizational assessment be made and appropriate organizational arrangements set in place to ensure efficient use of resources.

There is a need to develop capacities to prepare project protocols and implement programs. The number of health promotion officers (positions) at the district level has been recently reduced. It is not clear if the mandate for monitoring and evaluating the overall health promotion program has been acknowledged, and if so, where such responsibility may lie. In the absence of legal/statutory requirements for health districts to deliver a defined core of programs (e.g., smoking, STD education), there is no guarantee that projects prepared at the central level will be implemented or that funds designated for health promotion will be spent on the intended priorities.

The hallmark of effective health promotion is collaboration among different sectors. This requires involvement of partners in and out of the health system and in the public and private sectors. Coordination among different sectors presents valuable opportunities for levering matching resources of intersectoral initiatives and securing political support for particularly important to define accountability, thereby ensuring that management responsibilities are clearly delegated, and that work is rationalized.

On the basis of experience in other countries, it may be anticipated that a coherent program of disease prevention and health promotion will lead, within a ten-year period, to significant, measurable reductions in the burden of disease (especially for non-communicable disease) and health care costs. However, the returns on investment depend heavily on serious commitment to: * evidence-based interventions which have been proven effective elsewhere; * continuous process and impact evaluation, as well as feedback of result to improve intervention delivery; * interdisciplinary and systematic approaches to planning, project development and implementation; and * maintenance of an efficient and accountable organizational structure.

A key prerequisite for success is recognition, among government policy makers and politicians, that "creating health" is a concern that goes beyond the capacity of the health system. It is indeed a key responsibility of those charged with the implementation of the program to work hard to creating a climate supporting intersectoral collaboration among politicians, policy-makers and stakeholders concerned with health promotion and disease prevention issues.

76 Annex 4c Contracting and Provider Payment Systems

Regulatory and institutional background relevant for contract development

1. Reform in the health care system includes the challenge of introducing incentives to improve productivity. An effective usage of contracts would contribute to the achievement of this goal. Contracts are not ends in themselves, but are tools by which the principal stakeholders in the system can specify, formalize and regulate their actions. The various laws and "framework contract" place limitations upon the development of contracts. It is, therefore, important to review the main elements of these various documents and their impact on contracts.

Development of contracts

2. Romania finds itself in the unique opportunity to benefit both from the legal framework and political and managerial will to move forward in the reform process towards a system of contracts. However, there are many considerations that need thorough analysis before contracts are introduced across the whole system.

3. A major element of the 'cost of contracting' (i.e., the cost to the healthcare budget in managing the contracting process) is the capture and analysis of the data needed to support the process. As the extent and nature of data capture are inconsistent within the health care system at present, there is a serious capacity issue - both systems and analytical resources - to establish even the most simple of contracts. Any additional cost of administering contracts will reduce the volume and quality of service available. Given the level of GDP currently put into healthcare in Romania, and the extent of unmet need as suggested by Burden of Disease analysis, a cost-effective system of contracting must be a fundamentalpriority.

4. Important steps that should be achieved before successful contracting can be put in place would be: * clarify the Purchaser and Provider are and their respective powers; * agree on the type of contracts to be used and the services to which they are to be applied; * agree on a definition for the activity volume measure to be used in contracts; * develop a protocol, to be used nationally, for the analysis of activity into the agreed measure; * develop a protocol, to be used nationally, for the costing of contracts; * develop a set of minimum quality standards to be contained in contracts; * implement three or four pilot projects to develop, test and evaluate the above; * test to ensure that adequate systems of monitoring are in place, so that contract variations can be resolved; and * agree on the program of 'roll-out' needed for 1999 and 2000.

5. These tasks are achievable within the Romanian system. Their successful delivery will give a viable and feasible basis upon which a contract model can be successfully implemented.

77 IMPLEMENTATION ARRANGEMENTS: DEVELOPING MODEL CONTRACTS WITHIN PILOT SITES

Clarify roles and relationships

6. To facilitate reflection and decision making, roles that stakeholders could play in the future system are listed below: * Ministry of Health sets policies and national programs, which DHA will monitor and implement; * HIH collects funds due for payment from all of the appropriate sources, including Ministry for local element of national programs; * DHA takes account of MOH policies and local needs and sets local health needs assessment; * DHA and HIH develop a local health plan which will consider competing issues and sets priorities; * HIH agrees to fund services that meet the needs of the local plan; and * Providers, through contracting, will provide services that satisfy the contract, the plan, and thus local and national needs. Currently, hospitals are accountable to the DHA, which has varying degrees of control over them. A process is required whereby management is autonomous, but where facilities remain an agent of public interest.

7. The analysis presented above makes it clear that there are major roles for these key players in the future health system of Romania. Indeed, other interested parties also have a legitimate input into the process that determine the health system. It is suggested that one way to move forward is to allow the parties to come together and build an integrated approach to health care.

8. The health plan can represent the tool that would enable the legitimate needs of these many agencies to come together and maximize the outputs, and thus health gains for the population from their collective inputs. It can be used to build and develop local health alliances and collaboration so that hospitals, GPs and polyclinics can complement each other. The plan and funding system would easily allow for this.

Define model contracts within pilot sites

9. A sensible way forward is to consider a phased introduction of the contract process. There is great merit in taking forward the practical implementation of the contract by developing and testing the variants on contracts described above in a few sites. These sites would need to be allowed to act in a true Purchaser/Provider relationship and, as part of their work, would analyze how best these relationships could be developed.

10. The objective of a pilot experience would be to develop and test model contracts for the provision of provider units services. The model contract should be developed between an identified Purchaser and the Provider, and should conform to defined standards and protocols.

11. Three variants of the contract model could be developed in the pilot setting and analyzed comparatively for their advantages and disadvantages, namely: * Block; * Cost and Volume; and * Cost per Case.

78 The contracts will need to be based upon the outputs of the system. They will be set at the aggregate and average level of patient activity, wherever this is appropriate. Pilot sites will test the feasibility, viability and maintenance of accurately recording activity and its costs, at the level of the number of admissions and/or discharges by agreed clinical specialty. Protocols on the standards for data capture and analysis, including costing, will be agreed with the pilot sites. There will be a limited and pre-agreed number of detailed exercises to extend this scope to identified procedures and/or measure of case mix. These will concentrate on high cost activities. Finally, pilot sites will be expected to demonstrate the active involvement of their local DHA and HIH.

Key ingredients needed for the implementation of the pilot project:

12. Thereneeds to be a controlledenvironment within whichpilots can be undertakento enablea proper evaluation of the strengths and weaknesses of the proposals. This environment must specify, as a minimum: * standard data definition for activity; * a common currency for contracts (FCE, admissions, DRG etc.); * a common protocol for allocating costs; and * a limited range of specialties (concentrating upon the ones currently consuming significant share of resources and/or have good data).

13. The pilot study needs to be directed by a Steering Group, consisting of the main stakeholders. Before starting the pilots they should commission a series of supporting activities, especially: * outline manuals for contract specification, contract costing, data standards; and * initial selection/training support to pilots.

14. The Steering Group needs to develop clear Terms of Reference (TORs) for the pilot sites. These must specify: * the project and its constraints (as above); - timescales for delivery of outputs (there will be interim stages); and * support to be provided: manpower/specialist,financial, physical assets.

15. TORs should specify that the variants of contract types - block, cost/volume, cost per case - are to be tested. TORs should also enable the evaluation of the various support manuals and inputs into the pilots with a view to national rollout.

16. The Steering Group will not manage the project, but will establish and monitor a project plan which shall be executed by the Project Manager. The Steering Group needs to meet no more than monthly. It should consist of, at least, representatives of the Ministry of Health, DHAs, HIHs, College of Physicians, Hospital Association,donors, local expert, Institute of Health ServicesManagement, etc. The Steering Group should establish clear and open criteria for the selection of pilots. It is legitimate to choose, from current knowledge, one or two sites. "Open competition" to all DHAs/Providersshould ask for proposals within the TORs. Evaluation and criteria for choice must be agreed before selection.

17. The Project Manager would be responsible for liaising with the pilots and any other agencies, to ensure the project was successfully completed. He/she will be responsible for reporting progress against the plan, and for releasing any incentive payments based upon successful completion of stages. Incentives could include IT/systems support to develop information systems (the IT remaining in the ownership of the pilot site). Reimbursement of additional staff time is also appropriate.

79 18. Each pilot should establish its own local Steering and Implementation Groups. The Steering Group would bring in the key local players and replicate the national role, but at local ownership level. This would ensure the empowerment of the local implementationgroup, which would deal in detail. A local project plan, consistent to the national one, is essential, as is a local Project Manager.

19. An Innovation Fund financed by Government, grants, loans or a combination of these, would facilitate process.

20. Among the points that would trigger development are the following: * establish TORs; * establish standards for data definition and costing; * set clear boundary on extent of pilot (number of specialties); * choose pilots on agreed criteria, but offer some open competition; * establish support mechanisms before (manuals) during (management and training, IT) and at end (evaluation);and * project management essential to success.

Needed support

21. Support to the pilot sites should be made available by a combination of the following: * external technical assistance to the project; * internal (National) coordinator and project manager; * internal practical support and assistance to all sites (third or quarter time) in regard to data analysis and costing; e provision of IT, system and support tools (to be retained by pilot sites); * contribution to additional cost incurred locally in the pilot, up to a pre-agreed limit; and - informal networking support of pilot sites (suggest monthly meetings).

Outputs

22. Pilot sites will be expected to produce a number of tangible outputs. These will be agreed as part of a local project plan, but will include the following: * initialProject Plan, resourcedand with cleartimetable and review points; * monthlyprogress reports to localcoordinator; interimreport on progress,issues and problems; revisedProject Plan followinginterim report; * costedactivity-based contracts by a specifiedtime; and * evidenceof Purchaserinvolvement in the pilot. Paymentto pilot sites shouldbe dependentupon the achievementof these cleartargets.

\Annex4c.doc

80 Annex 5: Recommended Organizational Structure for Pharmaceutical Sector Otr RInsurance Ministry of |Ministries | Health Fund Finance

National Drug Departmentof Other Agency Pharmacy Responsibilities

*Registration *Inter-Ministerial *Management SHORT TERM *Licensing Coordinationof of Hospitals *Selectionof Reimbursable *Inspection NationalPolicy -Accreditationof Drugs *Health/Drug Professionals *Establishmentof Drug Information -National ReimbursementLevels System Programs *CostContainment SMonitoringof LONG TERM *Monitoringof 'Doctors'& Hospital Pricesof Budgets Monitoring of ImportedDrugs *Contractingwith Prices of Physicians Local *InformationSystems for Products \ ~~~~~~~~~~~~~~Monitoring Prescriptions

|Gen. Practitiorners&|__\_n Specialists-*r DrugCommittee j ricingCommittee |

/ | *~~ReimbursableDrug | |*rug Reimbursement| | Pharmacists List | |Levelsl -Comparative TherapeuticProtocols

81 Romania at a glance 6117199

Euroce& Lower- POVERTYand SOCIAL Central middle- ; Romanla Asia ncome Developmentdlamond- 1998 Pooulation.mid-vear (millions) 22.5 476 2.285 Lifeexpectancy GNPDercaoita (Atlasmethod. USS) 1.390 2.320 1.230 GNP(Atlas method, US$ billions) 31.3 1.106 2.818 Averaaeannual arowth. 1992-98 Pooulation/%) -0.2 0.2 1.2 Laborforce (%) -3.2 0.5 1.3 GNP Gross per primary Mostrecent estimate (latest vear available. 1992-981 capita enrollment Povertv(% of ooDulationbelow national oovertv linei 30 UrbanDoDulation (% of totalooDulation) 57 67 42 Life exDectancvat birth(vears) 69 69 69 Infantmortalitv (Der 1.000 live births) 22 25 36 Childmalnutrition (% of childrenunder 5) 6 .. .. Accessto safewater Accessto safewater (% of DoDulation) .. .. 84 Illiteracv(% of Dooulationace 15+) 97 . 19 Grossorimarv enrollment (% of school-aaeDoDulation) 97 92 111 Romania Male 97 .. 116 Lower-middle-incomegroup Female 96 .. 113 KEYECONOMIC RATIOS and LONG-TERMTRENDS

1977 1987 1997 1998 E - Economicratios* GDP(USS billions) .. 38.1 32.1 31.9 Grossdomestic investment/GDP 39.8 31.8 21.5 17.7 Trade Exoortsof aoodsand services/GDP .. 26.6 29.7 33.1 Grossdomestic savinas/GDP . 40.6 14.5 9.2 Grossnational savinas/GDP .. 40.0 14.6 7.8 Currentaccount balance/GDP .. 5.4 -6.7 -9.4 tic InterestDavmentslGDP .. 1.3 1.5 1.8 Domestc Investment TotaldebtUGDP .. 17.3 30.7 30.8 Savings Totaldebt service/exoorts .. .. 16.8 21.7 i Presentvalue of debtUGDP .. Presentvalue of debtUexDOrts .. Indebtedness 1977-87 1988-98 1997 1998 1999-03 (averaaeannual arowth) GDP 3.1 -2:3 -6.6 -7.3 Romania GNPoer CaDita 2.5 -2.4 -8.9 .. .. Lower-middle-incomegroup Exoortsof ooodsand services .. 1 7 2.1

STRUCTUREof the ECONOMY 1977 1987 1997 1998 Growthrates of outputand Investment (%l (%of GDP) 10 Aariculture .. 13.4 21.0 16.0 Industrv .. 54.1 35.6 36.9 o0 ------Manufacturina ...... a o ss Services .. 27.0 43.4 37.3 -10

PrivateconsumDtion .. 50.5 75.4 75.6 -20 Generalaovemment consumotion .. 8.9 10.1 15.3 GDI - GDP Imoortsof aoodsand services 17.8 36.7 41.6

(averace1977497 annual 198898rowth 1997 1998 Grh rtes ofexports and imports (%) (avereoeannual orovwth) Aariculture 0.2 2.2 -8.3 25 Industrv -5.0 -5.0 -9.5 20 Manufacturino is Services -2.4 -14.0 -6.3 10 Privateconsumotion 0.7 -6.2 -6.0 a - - - + Generalaovernment consumotion 4.0 -10.6 .. -s 4 s 9 9 Grossdomestic investment -5.9 -14.5 .10 0 Imoortsof aoodsand services .. 2.0 -4.6 .. Exports Imports Grossnabonal Droduct 3.1 -2.7 -9.2

Note:1998 data are preliminaryestimates. The diamondsshow four kevindicators in the countrv(in WoldMcomoared with its inrome-orouoaverace. If dataare missina.the diamond will be incomolete.

,. g ,.S,''.'3R3" . , ,'~~~~~~~~~~~~~~~ Romania

PRICES and GOVERNMENT FINANCE 1977 1987 1997 1998 Infatlonf(%) Domesticprices (% change) Consumer prices .. 0.9 154.8 59.1 300 Implicit GDP deflator -5.9 6.1 146.8 46.3 200 Government finance 100 (% of GDP, includescurrent grants) 0 -, _ Current revenue .. 50.4 30.4 34.5 93 94 95 96 97 98 Current budget balance .. 31.6 1.1 | GDPdtefator C Overall surplusideficit .. 15.2 -3.6 -3.3

TRADE (US$ mi/lions) 1977 1987 1997 1998 Exportand Import levels(USS millions) Total exports (fob) .. 10,491 8,431 8,300 14,000 Textiles .. .. 1,942 2,161 12,000 Metals .. .. 1,556 1,583 10t000 N EE Manufactures 7,570 6,676 6,633 8,000 r IZ I U U Total imports (cif) .. 8,313 11,280 11,194 eoola f UI U Food .. 111 695 1,012 4000 [U *I* U* U Fuel and energy 4,722 2,408 1,676 2,000 - * El U Capital goods .. 2,101 2,033 1,999 o_ - - - 92 93 94 95 96 97 98 Exoort Drice index (1995=100) .. 94 105 108 Imoort oriceindex (1995=100) .. 95 105 108 rE Exports Imports Terms of trade (1995=100) . 99 100 100

BALANCE of PAYMENTS 1977 1987 1997 1998 C- ce (US$ millions) Currentaccount balanceto GDP ratio Exports of goods and services 7,357 11,261 9,955 9,508 a - I 1i - Imports of goods and services 7,529 8,828 12,349 12,622 -1 92 93 994!95 97 ' 9 Resource balance -172 2,433 -2,394 -3,114 9| -3 Net income -132 -390 -322 -513 4 __ Net current transfers .. 0 579 617 4_

Current account balance -304 2,043 -2,137 -3,010 -7 - Financing items (net) -30 -1,002 3,802 2,167 .* Changes in net reserves 334 -1,041 -1,665 843 -O Memo: Reserves indudino cold (US$ millions) .. 4.671 3.789 Conversion rate (DEC. Iocal/USS) .. 22.2 7.787.7 10.629.1

EXTERNAL DEBT and RESOURCE FLOWS 11977 1987 1997 1998 F - -- _ (USS millions) Composltionof total debt, 1998(USS Total debt outstanding and disbursed 756 6,580 9,832 9,812 millions) IBRD 288 2,039 1,387 1,444 G-751 A: 1,444 IDA 0 0 0 0 A,4 Total debt service .. .. 1,833 2,264 | IBRD 17 373 98 170 IDA 0 0 0 0 Composition of net resourceflows Official grants 0 0 .. .. D: 11,49 Offiidal creditors .. 597 -5/ Private creditors ., .. 697 -672 E: 493 Foreign direct investment .. 1,224 2,040 F:5,433 Portfolio equity 0 0 142 130 World Bank program Commitments 237 0 590 Disbursements 145 0 399 298 A- IBRD E - Bilateral Pnncipalrepayments 0 215 28 70 B - IDA D - Other multilateral F - Private Netflows 145 -215 371 228 Interest payments 17 158 70 100 Net transfers 128 -373 301 128

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