7. HEALTH
Albania spends a below average share of GDP and of total public expenditures on healthcare. As a result, out of pocket spending is high, and this has serious equity, poverty and health sector stewardship implications. Public funds are not utilized to protect the poorest segments of society from health expenditure induced poverty. Public funds are allocated on the basis of inputs rather than the population’s health needs and providers’ performance. Combined with the substantial regional variation in coverage, this result in an inequitable allocation of resources. There are substantial sectoral inefficiencies, at both the primary and the secondary care levels. The current system of funding providers and allocating the capital budget further exacerbates these problems. At the same time, there are signs that the Albanian healthcare system is beginning to face expenditure pressures similar to those experienced in other transition economies, namely, an increased demand for higher cost healthcare.
Curbing these pressures, while also ensuring that the system adequately protects the population from health induced poverty, will require substantial changes in the way resources are allocated and utilized. This chapter recommends that Albania gradually shift to a single payer system which pays providers based on performance rather than inputs. It also recommends that investment decisions be based on strategic infrastructure master plans which are guided by the analysis of the current and expected utilization of care rather than by mere application of provider standards. Finally, it recommends that measures to improve the efficiency of resource utilization be accompanied by a gradual improvement in the balance of private and public spending.
A. INTRODUCTION
7.1 This chapter will review the extent by which public sector financing of healthcare in Albania has worked towards achieving the objectives of protecting the population from impoverishing healthcare expenditures while ensuring the efficient delivery of such healthcare services. It will do this by reviewing the flow of funds in the sector, the level and mix of sectoral financing, and the efficiency and equity with which public sector resources are allocated.
B. HEALTH OUTCOMES
7.2 Albania’s health outcomes compare favorably with those of other middle income countries outside the ECA region, but lag behind those of other countries in the Southeastern Europe (SEE) Region. All data sources show an improvement in Albania’s key health outcome indicators over the past decade, but different data sources paint a different picture of how well Albania is faring compared with other countries. By most accounts, Albania’s health outcomes compare favorably with those of other lower middle income countries outside the ECA Region, but not to other lower middle income countries in the SEE Region (Table 7.1). On the basis of official data, Albania enjoys the longest life expectancy in the Balkans. Other sources (Table 7.1) put Albania’s life expectancy below that of other countries in the SEE Region. Albania has the lowest healthy life expectancy in the Region. Similarly, estimated data which correcte for expected underreporting, put Albania behind other countries in SEE with respect to child and maternal mortality.
Table 7.1: Comparative Health Indicators, Albania and Comparators GNI Maternal Child Life DTP Measles Per Mortality Mortality Expectancy Healthy Life TB Vaccination Vaccination Capita Rate Rate at Birth Expectancy incidence Rate Rate US$ Albania 55 21 72 61 10 93 97 1,740 Bosnia and Herzegovina 31 17 73 64 25 84 87 1,540 Bulgaria 32 15 72 65 20 96 96 2,130 Colombia 130 21 72 62 23 92 91 1,810 Croatia 10 7 75 67 19 95 94 5,350 Ecuador 130 27 71 62 62 99 89 1,790 Romania 58 20 71 63 67 97 97 2,310 Serbia and Montenegro 9 14 73 64 16 87 89 1,910 Thailand 44 26 70 60 63 94 96 2,190 FYR Macedonia 13 12 72 63 14 96 96 1,980 Turkey 70 39 70 62 12 75 68 2,790 Source: WHO world health data base, 2005.
7.3 As will be further discussed below, these outcomes are commensurate with Albania’s health expenditures. A mapping of total per capita health spending levels (adjusted for PPP) against life expectancy suggests that Albania achieves a relatively good health outcome for the total amount of money spent on healthcare (Figure 7.1). It also fares well in vaccination coverage when compared to other Figure 7.1: Life Expectancy and Healthcare countries with similar income levels (Table 7.1). This Expenditure in Central and Eastern Europe is a reflection of concerted efforts by the Government to reestablish a strong vaccination system following Life Expectancy and Health Care Expenditure In Central and Eastern the system’s breakdown during the upheavals of the Europe mid- and late 1990s.
2000 1800 7.4 Albania’s demographic and 1600 1400 epidemiological profile is changing, with the 1200 burden of non-communicable diseases becoming 1000 800 the leading cause of death among the adult 600 400 population. Infectious diseases are still a leading 200 Albania 0 Health Care Expenditure Per Capita PPP Capita Per Expenditure Care Health cause of infant and child deaths. But recently, non- 66 68 70 72 74 76 78 80 communicable diseases, mainly cardiovascular Estimated life expectancy diseases and cancer, have become the leading causes of death among adults, and their incidence is expected Source: WHO, Health for All Data Base, 2005. to increase substantially as the population over 65 years of age doubles in the next 20 years. Some studies suggest that the diabetes incidence rate is higher than in many Western European countries and is likely to grow substantially over the coming two decades.143 Among the top new health risk factors are the high tobacco consumption, the rapidly increasing rate of fatal road accidents, and changing diets. Although HIV/AIDS prevalence is reportedly still low, the risk of HIV transmission is high owing to the mobility of the population and too human and drug trafficking.
143 See Ministry of Health and Public Health Institute, “Albania Public Health and Health Promotion Strategy,” 2003.
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7.5 The healthcare system is ill prepared to face this increase in non-communicable diseases and the lengthy and costly treatment associated with these diseases. The system continues to be heavily centered around secondary and hospital care, with insufficient emphasis on primary care, including primary and secondary preventive care and health promotion. Preventive care and health promotion will need to be substantially strengthened and will require higher resource allocations if Albania is to effectively address the growing incidence of non-communicable diseases in a cost-effective manner.
7.6 Furthermore, the existing health financing system offers limited protection against catastrophic illness or injury and Figure 7.2: Out of Pocket Spending on Health by Expenditure allows for little redistribution of Quintile, 2002 and 2005 resources to protect the most vulnerable groups from 2002 2005 impoverishing healthcare 14 900
expenditures. LSMS household 12 survey data show that lower income 800 groups spend a significantly higher 10 700 share of their household budget on 8 600 healthcare than upper income 6 groups, although in absolute terms 500 4 400 the lowest income quintile spends Health exp per capita only about half as much on health 2
as the top quintile (Figure 7.2) 0 1 2 3 4 5 1 2 3 4 5 7.7 The Albania Poverty Expenditure quintile Assessment has shown that health Monthly health exp., per capita As % of household expenditure* Source: LSMS 2002 and 2005 expenditures have a strong 2005 v alues are price and inf lation adjusted to 2002 prices. impact on poverty, with the *Health exp. was added to hh expenditure to compute these percentages. Quintiles were not af f ected. poverty incidence increasing from 25 to 34 percent if out-of-pocket health expenditure is subtracted from household income.144 Outpatient care expenditures have a greater impact on poverty than hospital expenditures, owing to their more frequent occurrence (Figure 7.3).
7.8 However, when low income households are faced with hospitalization, the income shock is catastrophic, with the average hospital payment amounting to over four times the monthly per capita income of the lowest expenditure quintile. Lower income households also have a significantly higher likelihood of incurring catastrophic healthcare expenditures than better off households, as even relatively modest outpatient care expenditures can amount to an excessively high share of a household’s budget. The average out-of-pocket expenditures for one episode of outpatient care amount to 50 percent of the average monthly per capita expenditure of the lowest consumption quintile, suggesting that even the need for a simple outpatient care visit can result in catastrophic expenditures for the lowest income groups.145
144 Pre-healthcare payment poverty is measured as the percentage of people whose household expenditure falls below the poverty line. Post-healthcare payment poverty is measured as the percentage of people whose household expenditure net of healthcare expenditure falls below the poverty line. The rationale is that expenditures on healthcare could have been used for other essential household consumption. See World Bank, “Albania Poverty Assessment“ 2003. 145 See World Bank, Albania Health Sector Note, 2005.
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Figure 7.3: Poverty Impact of Health Expenditures
35% 30% 35% % of population 30% poverty 25% spending more 25% q1 headcount index 20% than given share 20% before and after 15% Pre-payment H1 q2 on health care 15% health spending Post payment H1 q3 10% by consumption 10% 5% quintiles 5% q4 0% 0% q5 All health hospital > 10% of total > 25% of total > 50% of total expenditures expenditures expenditures expenditures expenditures
Source: World Bank Poverty Assessemnt 2003.
C. BACKGROUND AND INSTITUTIONAL CONTEXT
7.9 The Ministry of Health (MoH) remains the main provider of healthcare in Albania, although the presence of private sector providers is gradually increasing. The MoH is both the main provider and the main public sector financier of health services in Albania. It provides care through an extensive network of primary healthcare centers, health posts, polyclinics and hospitals. Household survey data146 suggest that less than 10 percent of those who seek healthcare (other than dental care) do so from a private provider. Dental care and the pharmaceutical sector are largely privatized and the presence of private providers for outpatient and diagnostic services is gradually increasing. However, an adequate regulatory framework and an effective system of safety and quality regulation and inspection are not yet in place. 7.10 The Health Insurance Institute (HII) administers a public health insurance program with limited coverage. The HII is funded by payroll tax contributions (3.4 percent of salaries or wages up to a maximum of three times the annual average personal taxable income), contributions of the self-employed and farmers (between 3 percent and 7 percent of the minimum wage, depending on the category), and budgetary transfers for the dependent population.147 Participation by farmers is voluntary. However, coverage of the insurance system remains limited to less than 40 percent of the population, mainly concentrated in urban areas and the upper income quintiles. Insurance benefits are limited to general practitioner visits, prescription drugs and certain high end diagnostics procedures. The World Bank’s Health Sector Note148 found that being covered by insurance does not result in a lower likelihood of out of pocket spending for healthcare, partly because of the widespread presence of informal payments. 7.11 Albania’s healthcare system remains characterized by strong central government control. Outside of the Tirana region, all public sector primary care facilities are operated under the general administration of the MoH’s regional and district directorates. Ownership of the facilities housing primary care is gradually being transferred to local governments, which then remain responsible for the physical maintenance of these facilities, though not for service provision. In the Tirana region, the Tirana Regional Health Authority was established to administer all primary care, including public health and polyclinics. All hospitals in the country are under the direct control of the MoH’s Hospital Department, with the exception of the Trauma Hospital in Tirana which is owned and operated by the Ministry of Defense. Hospital directors are appointed by the Minister of Health and have little managerial autonomy.
146 See LSMS 2002 and 2004, World Bank Albania Health Sector Note, Report No.32612-AL, 2006, provides an analysis of healthcare utilization patterns utilizing these data. 147 The dependent population includes all children under one year, pregnant women, war veterans, the disabled, the unemployed and recipients of social assistance, cancer patients, people under compulsory military service, and pensioners. 148 World Bank, Albania Health Sector Note, Report No. 32612-AL, 2006.
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7.12 The repeated violence and civil unrest during the 1990s resulted in extensive damage to an already poorly maintained healthcare infrastructure and in the disruption of essential services. A large number of the country’s medical staff abandoned their posts during this period. The Kosovo crisis in 1999 put additional strains on the system and caused further damage. It also brought to a halt recent structural reforms in the sector. Since then, substantial efforts have been made to rehabilitate the healthcare provider network, with particular emphasis on the rehabilitation of primary care facilities.
7.13 The distribution of physical and human resources in the health sector points toward substantial variation in coverage across districts and regions. The significant internal and out- migration in Albania over the past 15 years, combined with the massive destruction of facilities during the 1990s, left an already imbalanced healthcare provider network further out of line with the population’s health needs. The distribution of physical and human resource capacity in the sector remains uneven across regions, as well as within regions (Table 7.2).
Table 7.2: Inter - Regional Distribution of Physical and Human Resources in the Health Sector Area Regions per 100,000 population GPs Specialists Total Nurses/ Inhabitants per Hospital Doctors Midwives PHC facility beds Central Berat 839 223 51 90 141 415 Elbasan 1,213 295 48 68 116 439 Gjirokastra 579 330 41 56 97 377 Korca 927 315 67 115 183 627 Shkoder 1,698 255 45 81 126 589 Coastal Durres 2,096 222 45 68 113 435 Fier 1,685 177 56 76 132 321 Lezhe 1,206 210 43 52 95 286 Vlore 1,253 431 43 57 99 406 Mountain Diber 2,531 273 60 100 160 463 Kukes 1,663 344 44 62 106 498 Tirana Tirana 3,005 401 60 90 150 455 Average Albania 1,440 304 58 170 228 411 Source: Ministry of Health.
D. HEALTH SECTOR FINANCING AND EXPENDITURES
7.14 Albania spends about 6 percent of GDP on healthcare, commensurate with its income level. The share that the public sector contributes to this spending is below that of other countries with similar income levels (Figure 7.4 and Table 7.3). Albania’s public sector contributes less than 40 percent of total health sector spending, compared to about 45 percent for lower income countries and 58 percent for upper middle income countries. Almost 100 percent of private sector spending on healthcare is out of pocket spending at the point of service. This compares to a significantly lower share of out of pocket spending of 82 percent for lower middle income countries. External and donor funding of healthcare has dropped from almost 9 percent of total sectoral funding in 2000 to around 2 percent in 2005.
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Figure 7.4: Total Spending (left) and Public Sector Spending (right) on Healthcare and Per Capita Income 8 10
Bosnia and Herzegov ina South Af rica Colombia Paraguay Serbia and Montenegro 6 8 Brazil Macedonia, FYR Bulgaria Boliv ia Serbia and Montenegro Macedonia, FYR Turkey Bosnia and Herzegov ina Belarus Romania Jordan Turkey Honduras Samoa Dominican RepublicRussian Federation Boliv ia Romania 4 6 Albania Bulgaria China Cape Verde El Salv ador South Af rica Ukraine Algeria Cape Verde Turkm enis tan Thailand Guatemala Tunisia Ukraine Morocco Fiji Thailand Turkm enis tan Algeria Fiji Albania Dominican Republic 2 4 China Kazakhstan Azerbaijan Sri Lanka Kazakhstan Morocco
health sector spending, as% GDPof Indonesia Indonesia Philippines Philippines governmenthealth spending, as% ofGDP Azerbaijan 0 2
1000 1500 2000 2500 3000 1000 1500 2000 2500 3000 GNI per capita in USD GNI per capita in USD
Source: WDI, WHO. Source: WDI, WHO.
Table 7.3: Health Sector Financing, Albania and International Comparisons, 2002 Public External Health expenditure Private as % Total HE Expenditure as % of total expenditure of total per GNI/capita % of GDP HE as % of HE HE capita $ $ Atlas method Albania 6.1 38.7 61.3 3.8 94 1,740 Bosnia 9.2 49.8 50.2 1.8 130 1,530 Bulgaria 7.4 53.4 46.6 1.4 145 2,130 Columbia 8.1 83.0 17.0 0.2 151 1,810 Ecuador 4.8 36.0 64.0 0.9 91 1,830 Khazakstan 3.5 53.2 46.8 0.6 56 1,780 Macedonia 6.8 84.7 15.3 0.9 124 1,980 Romania 6.3 65.9 34.1 0.8 128 2,260 Serbia & Montenegro 8.1 62.8 37.2 0.3 120 1,910 Thailand 4.4 69.7 30.3 0.2 90 2,190 Turkey 6.5 65.8 34.2 0 172 2,800 Europe &Central Asia 7.2 66.0 33.0 0.4 152 2,417 Lower MICs 6.0 45.4 54.6 0.6 84 1,250 Upper MICs 6.0 57.6 42.4 0.5 310 2,180 High Income Countries 11.1 63.3 36.7 0 3039 26,160 Note: Europe & Central Asia excludes Western Europe. Sources: WHO NHA database, WDI 2005, Albania MoF.
Trends in Public Sector Health Expenditures 7.15 Despite considerable increases in health sector spending over the past three years, Albania continues to allocate a below average share of public sector resources to the health sector. Health sector expenditures have increased from a low 7.2 percent of consolidated government spending in 1999 to 9.3 percent in 2005, thus still remaining below that of most European and transition countries (average 10.3 percent). Public health sector expenditures have increased by 41 percent in real terms over the past five years, with an increase in per capita spending of 37 percent over the past three years. This increase was substantially driven by an increase in capital expenditures in 2004-05 made possible by high
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privatization proceeds. Sharply rising pharmaceutical expenditures have also contributed to the increase in spending (see below). Substantial real increases notwithstanding, public sector expenditures on health as a share of GDP have risen only slightly in the last five years, from about 2.2 percent in 2000 to an expected 2.5 percent in 2005. This share remains considerably below that of comparator countries. For example, in lower middle income countries public health sector expenditures as a share of GDP average around 2.7 percent and in upper middle income countries they average 3.5 percent (Table 7.4).
Table 7.4: Trends in Health Sector Spending, 2000-05 2000 2001 2002 2003 2004 2005 Public expenditure on health (nominal, mio lek) 12,334 13,722 13,718 15,699 19,314 21,584 Public expenditure on health (HE) (real, mio lek) 12,334 12,836 12,106 13,360 15,973 17,432 Public spending on health/capita (nominal, lek) 3,627 4,015 4,444 5,060 6,191 6,589 Public spending on health/capita (real) 3,627 3,755 3,922 4,306 5,120 5,322 Public spending on health/capita in US$ 25 28 32 42 60 67 HE as % of total public sector spending 7.2% 7.4% 7.1% 7.8% 8.7% 9.4% HE as % of GDP 2.3% 2.2% 2.2% 2.3% 2.5% 2.5% Source: Ministry of Finance.
7.16 The high share of out of pocket spending at the point of service has serious equity, poverty and health sector stewardship implications. The need for high out of pocket expenditures at the point of service results in access barriers for low income households, offers the population limited protection against catastrophic illness or injury and allows for little redistribution of resources to protect the most vulnerable groups from health shocks. Furthermore, the higher the share is of unpooled out of pocket spending, the less possibility the Government has to steward the sector and use fiscal instruments to drive health system reforms which are critically needed to improve quality of service, sectoral efficiency, and, ultimately, health outcomes.
Sources of Funding and Financing Agents
7.17 Sectoral funding remains fragmented and financing responsibilities have changed often over the past five years, contributing to uncertainty and low provider accountability. The principal public sector financing agents are the MoH (about two-thirds of public spending) and the HII (somewhat over one-quarter). The Ministry of Defense accounts for about 3 percent of spending, principally through the financing of the Military/Trauma Hospital in Tirana. The financing responsibilities of local governments in the health sector have frequently changed over the past few years (Table 7.5). The fragmentation of sectoral financing and frequent changes have created uncertainty among providers and patients and contributed to low provider accountability. The fragmentation has prevented the introduction of a coherent system of provider payment mechanisms which could encourage increased efficiency, quality, improved and coherent provider performance oversight.
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Table 7.5: Public Sector Funding Responsibilities in the Health Sector, 2000-2005 MOH MoD HII Local Governments 2000-2001 • Salaries of health sector Military hospital • GP salaries professionals, except • Prescription drugs general practitioners, PHC • Tirana PHC staff in Tirana and Durres • Durres hospital hospital • operating costs • capital investments 2002-2003 • Salaries of health sector Military hospital • GP salaries PHC operating professionals, except • Prescription drugs costs general practitioners, • Tirana PHC primary care staff in Tirana, Durres hospital & staff of Durres hospitals • operating costs for hospitals, except Durres • capital investments 2004 • Salaries of health sector Military hospital • GP salaries professionals, except GPs, • Prescription drugs PHC staff in Tirana and • Tirana PHC Durres hospital staff • Durres hospital • operating costs for PHC and • As of mid year hospitals, except Tirana also high end PHC and Durres hospital diagnostics • capital investments 2005 • Salaries of health sector Military hospital • GP salaries PHC capital professionals, except GPs, • Prescription drugs investments via PHC staff in Tirana and • Tirana PHC conditional grants Durres hospital staff • Durres hospital from central • operating costs • high end government • capital investments in diagnostics hospitals
Source: World Bank staff.
7.18 General revenues account for over 90 percent of public sector funding, despite a mandatory contributory health insurance system. General revenues have funded about 93 percent of public sector spending over the past five years, while social health insurance contributions from non-budgetary sector employers, employees, farmers and the self-employed have amounted to about 7 percent (Table 7.6). While contributions account for somewhat over half of all HII resources, only about 30 percent of HII funds do not come from general revenues, as a significant share of contributions are those for public sector employees (Table 7.7).
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Table 7.6: Public Expenditure on Health by Source and Financing Agents , 2000-05 (Lek million) 2000 2001 2002 2003 2004 2005 By Primary Source: General Revenues 11,644 12,787 12,417 14,070 17,892 19,244 HII contributions (non budget financed) 690 935 935 1,181 1,385 2,265 Local Authorities n.a n.a 366 447 37 75 Total 12,334 13,722 13,718 15,699 19,314 21,584 By Funding Agent Ministry of Health 8,261 10,281 9,339 10,408 12,935 14,087 Health Insurance Institute 2,437 2,967 3,604 4,365 5,760 6,870 Ministry of Defence 207 260 409 478 583 552 Other 1,636 475 366 448 37 75 Total Funding 12,334 13,722 13,718 15,699 19,314 21,584 Note: Information on spending by local authorities available only for 2001-05. Source: MoF, HII.
Table 7.7: Sources of HII Funding, 2001-05 2001 2002 2003 2004 2005 TOTAL HII Funds 3,605 3,611 4,647 5,181 6,556 Budget Transfers 1,200 966 2,100 2,350 3,250 Contributions 1,853 1,902 2,349 2,680 3,234 of which contributions for public sector employees 918 967 1,168 1,295 969 Other revenues 74 90 198 152 72 Budget transfers for pilot projects 478 653 Budget funding/total HII funding 72% 72% 70% 70% 64% Source: HII.
7.19 Effective coverage by HII is limited and only about one-third of the active work force makes contributions. Household survey data show that Figure 7.5: Health Insurance Coverage by Region only about 40 percent of the population is effectively covered by HII, mainly concentrated 60 61 in urban areas and the upper income quintiles, 61 with significant regional variations (Figure 7.5). 40 7.20 Contribution incentives for the active 40 39 40 36 labor force are overall weak, as the scheme 34 35 provides limited benefits, covering only primary 20 care (outside polyclinics), reimbursement of percent of individuals 20 17 prescription drugs of varying degrees, and certain high end diagnostic procedures. 0 Outpatient care in polyclinics and hospitals, and Tirana Coastal Mountain Central Total inpatient care, are financed by general revenues Coverage in 2002 Coverage in 2005 and in principle are free of charge if a patient Source: LSMS 2002 and 2005. has been referred by the primary care physician.
7.21 Household surveys show that the vast majority seeking care at these levels nevertheless incurs significant out of pocket payments, irrespective of insurance coverage. Similarly, household survey data also show that the possession of a health insurance booklet does not significantly lower the
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amount of out of pocket expenditures for outpatient care nor does it affect the likelihood of having to pay for care, particularly outside of Tirana.149 Overall, the incentives to pay health insurance contributions are limited. Furthermore, anecdotal evidence suggests that a significant share of the population has limited knowledge of health insurance benefits. Thus, it is likely that some of those who are in principal covered through the state do not know about, and make use of, their rights. User Fees 7.22 Although out of pocket payments account for over 60 percent of total health sector spending, formal user fees amount to a minimal share of public sector health expenditures. User fees are in principle charged for primary care for all those who are not covered under HII, for those who seek outpatient secondary care without referral and for certain diagnostic procedures. No formal fees are charged for stationary hospital care. With the exception of fees for diagnostic procedures, fees are minimal, are not rationally structured and are irregularly applied. Most primary care providers are not equipped to formally collect money. Providers have little incentive to collect fees, as they can retain only 10 percent of the revenues collected: the rest is transferred back to the district public health directorate. Healthcare providers must utilize their share of collected fees as follows: 20 percent for minor investments, 50 percent for operating costs and 30 percent for staff bonuses. Over the past three years, total fees collected and reported have amounted to only about 1 percent of public sector expenditures in the health system. Household survey data, however, would suggest that the amounts collected should be substantially higher, indicating that there is considerable underreporting and abuse.150
Resource Utilization Figure 7.6: Evolution of Public Sector Health 7.23 Hospital expenditures dominate public Spending by Program, 2000-05 sector spending on health. Albania allocates a higher share of total public sector spending to 25,000,000 hospital care than do OECD or EU-8 countries. Hospital expenditures account for about half of all 20,000,000 public sectors spending on healthcare in Albania compared to an OECD average of about 38 15,000,000 percent. The trend over the past five years has been one of a growing share of public spending 10,000,000 going to hospital care and prescription drugs, at the expense of primary care. This contrasts with 5,000,000 the trend in most European and transition countries where a growing share is allocated - 2000 2000 2001 2002 2003 2004 2005 towards outpatient care, as a result of more cases being treated in an outpatient setting and the Primary Health Care and Public Health Hospital Care Prescription Drugs Administration and Other falling duration of hospital stays (Figure 7.6). Source: MoH, MoF. 7.24 The growing importance of hospital expenditures in Albania was substantially driven by increased capital expenditures in the hospital sector. Given the overall poor state of the hospital infrastructure in Albania, this might be justified if investment decisions were guided by an overall strategic vision of how the hospital sector should evolve and be rationalized in the coming decade. However, there is little evidence that this is the case (see Section F on budget formulation).
149 For details, see World Bank, Albania Health Sector Note. 150 Based on LSMS data, reported household expenditures on laboratory analysis in the public healthcare setting alone would amount to at least twice as much as the total amount of reported fees collected, while LSMS data also show substantial additional outlays for treatment and informal payments.
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7.25 Expenditures on HII-financed prescription drugs have doubled over the past two years and led to unsustainable HII deficits for the second year in a row. Spending on HII-reimbursed prescription drugs now accounts for almost 20 percent of public sector recurrent spending on healthcare, although it benefits only a minority of the population. The rapidly increasing spending on prescription drugs over the past two years was largely the result of an imprudent expansion of the positive list of drugs, and of the cancellation of co-payments for most beneficiaries. Pensioners, the main beneficiaries of these new reimbursement rules, are now responsible for close to 50 percent of HII drug expenditures. Overall, less than 20 percent of HII beneficiaries pay the full share of co-payments foreseen in the HII reimbursement list. These policy changes led to a substantial deficit of HII in 2005 and a situation in which HII was no longer in a position to pay suppliers from September on word. To remedy the situation, the Government adopted an amendment to the Budget Law in December, allowing for an additional transfer from the state budget to HII of 1 billion lek. 7.26 In the spring of 2006 the Government reintroduced a flat co-payment per prescription to help stem the rapidly rising drugs expenditure. However, additional policy measures, such as the tightening of the positive list of drugs, changes to the reimbursement policy and further revision of the margins to drugs are necessary to curb further cost increases and ensure the sustainability of HII’s drugs reimbursement scheme. 7.27 Conversely, Albania underspends on primary care and public health. The declining importance accorded to primary care spending has contributed to the poor performance of the primary healthcare system. Inadequate funding for Figure 7.7: Non-Salary Spending on Primary primary care has translated principally into under Care outside of Tirana, 2001-05 funding of non-salary recurrent expenditures and 800,000 inadequate allocations for basic primary care equipment. Underfunding of non-salary recurrent 700,000 expenditures outside Tirana was particularly 600,000 marked during 2002-03, when this responsibility 500,000 was temporarily shifted to local governments. 400,000 Despite a shifting back of this responsibility to 300,000 the MoH in 2004, however, these expenditures 200,000 did not fully recover and they remain below their 100,000 level in 2001 (Figure 7.7). Together with the - absence of treatment guidelines that would reflect 2001 2002 2003 2004 2005 cost-effectiveness considerations, the under funding of non-salary recurrent expenditures and Source: MoH, MoF. the ensuing shortage of basic supplies has contributed to the overall low quality and ineffectiveness of the primary care system. This has led much of the population to circumvent primary care in favor of hospital-based specialist care, even for such simple conditions as a cold or flu. 7.28 Over the past five years the budget execution ratio in the health sector has lagged behind that of other sectors. This is largely a reflection of poor budget execution for capital expenditures. The sub-optimal execution of the capital budget was due to a combination of factors, including insufficient lead time to carry out and complete tenders for substantial capital investment projects and poor execution of externally funded projects, with the associated lagging utilization of earmarked counterpart funds (Figure 7.8). Though improving since 2003, much of the improvement is attributed to the devolution of capital spending on primary healthcare to local governments and the rapid execution of projects financed by the supplementary budget at the end of 2004. There are also indications that healthcare providers, in particular hospitals, have incurred arrears to suppliers of medical goods, drugs, and at times civil works contractors. However, no concerted effort has been made to date to assess the extent of the arrears build- up in the health sector. Anectotal evidence suggests that suppliers often resort to questionable means to
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move ahead in the claimants’ queue. In the medium term this is likely to result in reduced competition and higher costs of supplied products.
7.29 The increasing incidence of Figure 7.8: Budget Execution Ratio: Total Public Sector chronic diseases and accident related Spending and Health Sector Spending, 1999-2004 deaths argues for an increase in spending on preventive care and key 120% public health functions. The data for 100% carrying out a proper assessment of 80% spending on core preventive and public health programs are limited.151 However, 60% the absence of core health promotion and 40% preventive programs and the poor state of 20% the health information system indicate that 0% Albania fails to allocate sufficient 1999 2000 2001 2002 2003 2004 2005 resources to these functions. Since almost Total budget spending Health spending all the causes underlying premature deaths due to cardiovascular diseases, cancer and Source: MoH, MoF. injuries can be influenced by changes in behavior and habits, effective health promotion and prevention programs targeted to these changes could significantly reduce the burden of disease and hence, the related treatment costs to the healthcare system. Similarly, improved and more reliable information about health outcomes and the allocation and utilization of resources in the health sector are key to ensuring the most effective allocation of limited resources. Therefore, increased attention and better resource allocation to these areas are warranted (Table 7.8).
Table 7.8: Expenditure on Core Public and Preventive Health Programs, 2002-04 Year 2002 2003 2004 % of Total In Lek 1,000 Health Expenditures Maternal and child health 385,000 477,000 527,000 2.7% Health promotion 87 96 120 0.0% HIV/AIDS programs 4,645 5,755 19,690 0.1% TB Control 99,400 123,200 154,000 0.8% Vaccination n. a. 11,318 20,339 0.1% As a % of total public sector spending on health 3.6% 3.9% 3.7% 3.7% Note: Data are indicative only, as expenditure classification prevents close monitoring of expenditures by sub-programs. Source: Staff estimates based on MoH data.
E. EFFICIENCY AND EQUITY OF RESOURCE UTILIZATION
7.30 The low utilization of primary care facilities leads to low productivity and inefficient resource utilization. Administrative data suggest that Albanians have significantly level outpatient contracts with healthcare provides than people from other countries in ECA, Latin America or Western Europe. The low perceived quality of primary care and the resulting by-passing in favor of care at polyclinics or hospital outpatient facilities results in the low utilization of primary care facilities and the extremely low productivity of primary care staff. On average, a primary care doctor sees only about eight
151 Budgetary classifications are limited to five programs only, including primary care, public health (including sanitary-epidemiological services), hospital care and administration.
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patients per day, with marked regional variations resulting in as few as three visits per day in certain regions (Figure 7.9). Analysis of primary care activity in the Tirana region further points to a substantial inter-facility variation in productivity.152 This results in high fixed costs per visit and leaves insufficient resources for non-salary recurrent expenditures.
Figure 7.9: Visits per General Practitioner Figure 7.10: Hospital Days per Physician and Nurse
18 1400 600
Visit s/GP /Day 14 1200 500 Average Albania Days/MD AL MD 10 1000 400 Days/RN AL RN RN Pro d u ctiv ity 6 M D Pro d u ctiv800 ity 300
2 600 200
t r r s ë r ës n r ë hë r ë t r s n e s e r re ibë rr sa Fie ë dë lor ibe Fie r e o Bera D u ez o iran V ste rane D lba Korç Kukë L k T Bera D lbasa a Korc Kuke Lezh i Vl E Sh DurreE T jirokast irok Shkod G Gj
Source: World Bank Albania, Health Sector Note, 2006.
7.31 The large number of small hospitals with low utilization and occupancy rates also points to inefficient resource utilization in the hospital sector. While it is relatively low in comparison with to European averages, Albania’s hospital capacity (3.03 beds per 1,000 population) compares favorably with that of many other lower middle income countries and is similar to that of some of the more efficient European healthcare systems (such as Finland, Sweden, and Spain) and that of Turkey. However, the configuration of the hospital network points to large inefficiencies. Over 60 percent of Albania’s hospitals are too small to exploit scale economies in the general acute care hospital setting. Thirty out of 46 hospitals have less than 200 beds and jointly account for only one-quarter of all hospital admissions, while they continue to consume a considerable amount of scarce resources. Low admission and occupancy rates lead to high staff per occupied bed ratios in the smaller hospitals and raise serious concerns about fixed costs and quality assurance (Table 7.9). Strong central control over hospitals and an input-based payment system leave hospital managers without the incentives or the authority to undertake changes to improve the efficiency and quality of their operation.
Table 7.9: Distribution of Hospitals and Utilization, by Number of Beds, 2003 MOH Hospitals Beds Admissions Bed occup ALOS Bed range Total In % Total In % Total In % rate < 49 beds 11 23.9% 331 3.7% 5,392 2.0% 26.7% 6.7 50 - 99 9 19.6% 728 8.0% 16,000 6.0% 34.5% 5.6 100 -199 10 21.7% 1,386 15.3% 44,438 16.5% 47.8% 5.9 200 - 299 7 15.2% 1,774 19.6% 59,064 22.0% 67.5% 35.8* 300 - 399 3 6.5% 1,072 11.8% 27,331 10.2% 53.5% 76.0* 400 - 499 3 6.5% 1,236 13.7% 37,232 13.9% 39.0% 4.8 500 - 599 2 4.3% 1,099 12.1% 27,459 10.2% 48.3% 7.3 1000+ 1 2.2% 1,423 15.7% 51,609 19.2% 74.4% 7.5 Total 46 100% 9,049 100% 268,525 100% 53.6% 6.7 * Includes psychiatric hospitals with each having ALOS of more than 100 days. Source: World Bank, Albania Health Sector Note, based on data from Ministry of Health.
152 See Tirana Regional Health Authority, Tirana Region Primary Healthcare Plan.
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7.32 Input-based resource allocation and large variations in healthcare coverage result in the inequitable allocation of public healthcare expenditures. Public sector spending on health per capita varies markedly by district and region. There are three instances where such a variation may be called for: (i) when certain regions show significantly worse health indicators than the rest of the country and specific programs are funded and targeted at raising health outcomes in these particular regions; (ii) when public sector resources are specifically targeted towards the poorest regions to ensure adequate financial protection of poor households; and (iii) when certain districts or regions are home to hospital facilities which provide services to a wider area (for example, regional or national hospitals). None of these conditions appear to be driving the geographical variation in health sector spending in Albania. The variation is largely due to the skewed distribution of health facilities and staff and input-aced financing. It is further reinforced by substantial regional variation in the coverage of the health insurance system, which only reimburses prescription drugs to those who are covered. Coverage is substantially higher in Tirana than in other regions, with the ensuing substantially higher expenditures on drugs in Tirana.
Box 7.1: Measuring the Efficiency of Public Expenditure on Health Efficiency measures how productive public expenditure is in achieving results in the health sector. Using Herrera and Pang (2005)1/ the efficiency of health expenditures is assessed Figure 7.11: Life Expectancy and Health Public by comparing Albania’s public health Expenditure spending and its outcome (in this case life AUS ISL 80 CYP ESP GRC ML T CHL LUX FINCRI expectancy) to those of other high-growth IRL KOR SVNCZE MYTTO S ALB HRV countries, new EU entrants and several MU S KNA HUN LVA 70 VNMWSM THA CPV BLR Euro-area economies. The efficiency frontier DOM AZE TKM KAZ of the most efficient countries is estimated IND following the Free Disposable Hull (FDH) 60 2/ SDN technique. KHMLAO
50 TCD The most efficient economies which form Life expectancy at birth, 1996-2002 MOZ UGAMLLSO I the efficiency frontier in the sample using BWA 40 this indicator are Spain, Iceland, Austria, 400 600 800 1000 1200 1400 Chile and Korea. Albania is using 43 percent Orthogonalized public expediture on health, 1996-2002 more public spending to achieve the same Efficiency Frontier Source: Herrera and Pang (2005) level of health outcomes as Korea and Chile, Fastest growing countries, 1993-03 growth rate of more than 2.2%. both benchmark countries. Albania scores similarly to the new EU members, Poland, Latvia, the Czech Republic, and Hungary, considered being inefficient public spenders.1/ This suggests that the efficiency of public spending in the health sector needs to be improved while private health spending is reduced.
1/ Herrera, S., and G. Pang. “Efficiency of Public Spending in Developing Countries: An Efficiency Frontier, The World Bank, 2005. 2/ Free Disposable Hull (FDH) is a non-parametric technique (no parameters are assumed about the relationship between the input and the output) that does not impose a functional form (for example, concavity) on the efficiency frontier. The countries are ranked in several rounds to determine the most efficient one for each level of input. The most efficient ones form the efficiency frontier. See Herrera and Pang (2005) for more details.
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7.33 The marked variation in per capita spending cuts across all types of spending, Figure 7.12: Public Sector Recurrent including non-salary recurrent expenditures in Expenditures on Health by Region primary care. While still considerable, the inter- Public Sector Recurrent Expenditures on Health By Region regional variation in per capita allocations is 12,000 somewhat less marked for primary care than other 10,000 8,000 types of expenditures. However, non-salary 6,000 recurrent expenditures, which have been 4,000 notoriously low for primary care, are substantially 2,000 - Per capita expenditure 2004 t r s a e higher in Tirana than elsewhere in the country a an ier ce r er iber F r lo B D iran V Durres lbas Ko Kuke Lehze T E Shkoder (Figure 7.12). While the large variation in hospital Gjiorkaste care can partly be explained by the Tirana region, also providing tertiary care for the population from Per capita expenditures w ithout drugs reimbursements Per capita expenditures incl. drug reimbursements other regions, the substantially larger amount of primary care expenditures, including non-salary Source: MoF and MoH. operating expenditures, allocated to Tirana than are difficult to justify, as Tirana’s primary care system covers only the population of the Tirana region. Figure 7.13: Regional Variations on Health Sector Expenditures (2004)
Hospital spending per capita by region HII Drugs Expenditure Per Capita By Region
6,000 3,000 5,000 2,500 4,000 2,000 3,000 1,500 2,000 1,000 1,000 500 - - t s n er s e re at e re fier t e der fier hz orc lo Bera diber urre korce kuk le tirana vlo Ber diber k lehze tirana v d durres kukes hkoder elbasa shko elbasan s jiorkaster gjiorkas g
Primary Health Care Spending Per Capita By Region Non-Salary Recurrent Spending for PHC Per Capita by Region 2,500 2,000 1200 1000 1,500 800 1,000 600 500 400 - 200 0 er s b fier ter es s Berat di korce lehze koder tirana vlore er durre kuk iber fier der elbasan sh d vlore Berat durres korce kuke lehze tirana gjiorkas elbasan orkast shko gji
Source: Staff calculations based on data from MoF, MoH, HII and INSTAT. 7.34 Public sector spending on healthcare is not targeted towards the regions with the highest poverty incidence. On the contrary, the regional allocation of spending is quite regressive. The lower the poverty rate is, the higher public sector healthcare expenditures appear to be. This is even more marked when health insurance financed reimbursements for prescription drugs are taken into consideration (Figure 7.13 and Figure 7.14). 7.35 In Tirana, where public sector spending for healthcare is substantially higher than elsewhere, people are less likely to pay for outpatient care than in poorer regions. The Albania Health Sector Note has shown that the share of those who pay for outpatient care is lower in Tirana than in the rest of the country and that the amounts spent on treatment, informal payments and transportation are markedly lower in Tirana than elsewhere. This is a clear indication that the higher public sector per capita expenditures on healthcare in Tirana result in the better overall health protection of the population in the capital.
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Figure 7.14: Recurrent Expenditure on Health and Poverty Headcount by Region (2004)
Health Expenditure by Region and Poverty Health Expenditures and Poverty By Region
50% 50%
40% 40% 30% 30% 20% 20%
Poverty Rate 10% Poverty Rate 10% 0% 0% 2000 4000 6000 8000 10000 12000 2000 3000 4000 5000 6000 7000 8000 Recurrent Expenditure/capita (incl. prescription Recurrent spending per capita (excl. prescription drugs) drugs)
Sources: Ministry of Finance and INSTAT.
F. BUDGET FORMULATION AND PROVIDER PAYMENTS
7.36 The absence of a country-wide hospital network plan which would establish a vision for a more efficient hospital network and guide hospital investments leads to inefficient use of investment resources. The lack of a final decision on how many and which hospitals, should be developed as regional or multi-region hospitals and what services these should provide, and on the future of the many remaining small and underutilized hospitals, results in haphazard allocation of limited investment funds. In the face of an overall poor hospital infrastructure and lack of a hospital master plan, the limited investment budget is stretched too thin across a broad range of investments. Investment decisions are often opportunistic, particularly when external financing is involved. A case in point is the rehabilitation of Kavaya hospital which is only a short driving distance from Durres hospital, which has substantial capacity and is also further expanding. Both are in turn within easy reach of Tirana. 7.37 Similarly, no framework has been established for making informed decisions about investments in high-end medical equipment. Experience in other countries has shown that this is potentially a key cost driver in the sector. To address this issue many countries have introduced a certificate of needs procedure whereby investments in high-end medical equipment are approved only after an overall assessment of the need and cost-effectiveness of such investments has been carried out. 7.38 The decentralized allocation of investment funds in primary care facilities also leads to a sub-optimal use of resources. Investments for the rehabilitation and new construction of primary healthcare facilities are not based on an analysis of the efficiency of the utilization of existing facilities but are driven by aspired standards of establishing one health post per 1,000 population and one health center per 4,000 people. Since 2005, both the MoH and the local governments are involved in deciding how the investment budget for primary healthcare will be allocated. The MoH, on the basis of the aspired coverage standards, requests its local offices (district public health directorates) to make proposals for the rehabilitation or construction of new facilities. The local offices consult with the local government and then send proposals to the MoH. The proposals are ranked by the MoH utilizing the four-point prioritization system devised by MoF for all public sector investments. The resource envelope for investments in primary healthcare is then allocated to the 12 regions and 10 municipalities based on this prioritization. Funds are transferred to regional governments as conditional grants with a recommendation by the MoH to utilize them for the projects ranked highest by the MoH. 7.39 However, local governments, are not obliged to utilize the funds in accordance with the MoHs approved priority list, and the experience in 2005 suggests that there is a tendency for local governments to spread available resources too thin or at times to completely diverge from the MoH recommendations and build new facilities with no assurance that healthcare staff will be available to serve them. The result of this approach is a large number of small investments which contribute little to strengthening primary care quality and effectiveness.
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7.40 Investments in primary healthcare facilities should be guided by regional primary healthcare development plans that are based on a thorough analysis of the utilization of existing resources. As long as the Government continues to invest in primary healthcare facilities, such plans should be developed through coordination between local governments and the MoH. Local governments should then be bound to utilize investment funds only in accordance with these plans. In the case of the Tirana region, the development of such plans, if based on an analysis of the utilization of the existing network and the aspired efficiency improvements, could result in a substantially more consolidated, but higher-quality, network, than the indiscriminate application of the MoH’s relatively generous coverage coefficients.153 7.41 Input-based line item funding of healthcare gives providers no incentive to improve the quality and efficiency of service provision. Public healthcare providers in Albania continue to be funded on the basis of inputs rather than performance. While general practitioners are funded through HII on a capitation basis, this payment is not based on the active enrollment of the population with a particular physician, nor does the payment include allowances for non-salary operating costs. Thus it is merely a salary based on the declared number of people serviced, with adjustment for location.154 Other costs at the primary care level are covered through the MoH budget and based on historic budgets. 7.42 Similarly, hospitals are funded on the basis of line item budgets which leaves hospital managers without the incentives or authority to undertake changes to improve the efficiency and quality of their operation. With the exception of Durres Hospital, hospital providers are financed through the MoH using input-based line item budgeting. Hospital managers have limited expenditure management and managerial autonomy. Resource allocations are driven by staffing allocations, a per diem allowance per approved bed for hostelling and historic budgets for utilities and other operating costs. The financing of all providers is carried out irrespective of the amount and quality of services which they provide. Providers have essentially no autonomy to reallocate funds across expenditure categories. They can hire and dismiss staff within the MoH-set norms with ministerial approval and can select vendors for supplies other than pharmaceuticals. However, they cannot reallocate funds across budget categories and adjust the overall staffing levels according to a given hospital’s needs. The lack of a formal co-payment system for hospital care further perpetuates informal payments. The contemplated shift towards performance-based payments through a single payer system could contribute substantially towards improvements in the efficiency of resource use, provided it is introduced with the proper accountability mechanisms and information systems in place.
G. CONCLUSION AND RECOMMENDATIONS
7.43 Albania’s health financing system is afflicted by several key shortcomings. Among them are: (i) the high share of out of pocket payments for healthcare and the ensuing failure of the health finance system’s ability to protect low income groups from health induced poverty shocks; (ii) regional inequities in resource allocation; (iii) fragmentation in public sector financing with the ensuing in inefficiencies, lack of accountability and uncertainties; (iv) limited Government ability to properly exercise its sectoral stewardship function owing to the high share of out of pocket spending outside of an overall financing
153 The preparation of a primary healthcare development plan for the Tirana region was based on a detailed analysis of current utilization patterns and resulted in recommendations for substantial consolidation of the physical and human resource base, with the upgrading of the remaining facilities to ensure a basis for adequate service provision. It also pointed to the need to review the MoH aspired standard of one health post per 1,000 population and one health center per 4,000 population. Unfortunately, the plan, which could have served as a good basis for the development of similar plans in other regions, was never adopted and implemented. 154 The total number of people declared to be serviced by HII paid general practitioners is substantially higher than Albania’s total population reported by INSTAT, which points to inaccurate declarations by the primary care providers.
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framework; and (iv) a provider payment system which fails to harbor incentives to improve efficiency and accountability for performance.
7.44 At the same time, there are indications that Albania is beginning to face some of the same health sector expenditure pressures that have been widely observed in more developed health systems, including the recent EU accession countries. Aside from the already witnessed rapid increase in expenditures on prescription drugs, the maintenance of a sub-optimal hospital infrastructure, the proliferation of costly medical technology, the increasing incidence of non-communicable diseases and the growing health personnel salary pressures155 are likely to place a greater burden on the fiscal sustainability of Albania’s health system in the coming years. Countering these pressures while also ensuring adequate protection of the population from the impoverishing effects of health expenditures will require fundamental changes in the way healthcare is produced, financed, delivered, organized and managed.
7.45 Recommended priority actions pertaining to the health financing system are listed below. It must be noted that these actions constitute fundamental changes to the health finance system which should be introduced gradually over the coming three to five years. It is important that all areas of the health finance system, including resource mobilization, resource allocation and the provider payment system, should be changed in a synchronized fashion.
Improving of Resource Mobilization for Health Financing
• Proceed towards the elimination of the payroll tax based health insurance contribution and replacing it with general taxation revenue while ensuring a predictable financing stream to HII. • Define the package of services which will be provided with public funds to eligible beneficiaries and formalize out of pocket payments for services by expanding co-payments to a wider range of services, including in-patient care. • Establish a system of lower co-payments and concurrent higher budgetary payments for clearly defined low income target groups. • Allow providers to keep a substantially larger share of collected user fees under well defined conditions.
Increasing the Efficiency of Resource Utilization
• Increase the resources allocated to public health, including health promotion, health information and preventive care in view of reducing high cost diseases. • Develop a master plan for the hospital sector and regional primary healthcare plans as a basis for decision making for future capital investments, and base investment decisions on a thorough analysis of the current and expected utilization of facilities and aspired efficiency improvements.
155 The experience in other transition countries has shown that health sector salaries can result in substantial expenditure pressures even when the sectoral labor force is optimally structured. If health sector salaries lag substantially behind salaries in the rest of the economy, the health sector will not be able to retain the necessary qualified staff. In Albania, health sector salaries have lagged behind average salaries and behind salaries in comparable sectors such as education. Salary pressures are exacerbated by the demand for skilled medical personnel in other European countries which offer substantially higher payments.
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Changing the Provider Payments System
• Eliminate the fragmentation of healthcare financing and separate financing from the provision of healthcare, by channeling substantially all of the public sector resources for healthcare through one financing agency (HII) which will pool and allocate funds and act as an agent to purchase a well defined package of healthcare services from healthcare providers on behalf of the population. • Change the provider payment system from an input-based system to an output and performance-based system, and gradually grant healthcare providers increased autonomy over resource use. Introduce this change gradually, by first concentrating on the direct contracting of primary care providers, and then expanding to hospital care. • Revise the reimbursement policy for prescription drugs by: (i) maintaining the recently introduced co-payment for all HII beneficiaries; (ii) tightening the positive list of reimbursable drugs; (iii) limiting reimbursement to the price of the lowest available alternative; and (iv) further revising the wholesale and retail margins for drugs, by either making them more digressive or paying pharmacies a flat fee per prescription.
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