Health, Nutrition and Population (HNP) Discussion Paper
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46706 HNP DISCUSSION PAPER Public Disclosure Authorized Enhancing Efficiency and Equity: Challenges and Reform Opportunities Facing Health and Pension Systems in the Western Public Disclosure Authorized Balkans About this series... This series is produced by the Health, Nutrition, and Population Family (HNP) of the World Bank’s Human Development Network. The papers in this series aim to provide a vehicle for publishing preliminary and unpolished results on HNP topics to encourage discussion and debate. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations or to members of its Board of Executive Directors or the countries they represent. Citation and the use of material presented in this series should take Caryn Bredenkamp, Michele Gragnolati and Vedad Ramljak (eds.) into account this provisional character. For free copies of papers in this series please contact the individual authors whose name appears on the paper. Enquiries about the series and submissions should be made directly to Public Disclosure Authorized the Editor Homira Nassery ([email protected]) or HNP Advisory Service ([email protected], tel 202 473-2256, fax 202 522-3234). For more information, see also www.worldbank.org/ hnppublications. THE WORLD BANK 1818 H Street, NW Public Disclosure Authorized Washington, DC USA 20433 Telephone: 202 473 1000 Facsimile: 202 477 6391 Internet: www.worldbank.org E-mail: [email protected] September 2008 ENHANCING EFFICIENCY AND EQUITY: CHALLENGES AND REFORM OPPORTUNITIES FACING HEALTH AND PENSION SYSTEMS IN THE WESTERN BALKANS Caryn Bredenkamp, Michele Gragnolati and Vedad Ramljak (eds.) September 2008 Health, Nutrition and Population (HNP) Discussion Paper This series is produced by the Health, Nutrition, and Population Family (HNP) of the World Bank's Human Development Network. The papers in this series aim to provide a vehicle for publishing preliminary and unpolished results on HNP topics to encourage discussion and debate. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations or to members of its Board of Executive Directors or the countries they represent. Citation and the use of material presented in this series should take into account this provisional character. For free copies of papers in this series please contact the individual author(s) whose name appears on the paper. Enquiries about the series and submissions should be made directly to the Managing Editor, Homira Nassery ([email protected]). Submissions should have been previously reviewed and cleared by the sponsoring department, which will bear the cost of publication. No additional reviews will be undertaken after submission. The sponsoring department and author(s) bear full responsibility for the quality of the technical contents and presentation of material in the series. Since the material will be published as presented, authors should submit an electronic copy in a predefined format (available at www.worldbank.org/hnppublicationsH H on the Guide for Authors page). Drafts that do not meet minimum presentational standards may be returned to authors for more work before being accepted. For information regarding this and other World Bank publications, please contact the HNP Advisory Services at [email protected] H (email), 202-473-2256 (telephone), or 202-522- 3234 (fax). © 2008 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington, DC 20433 All rights reserved. Health, Nutrition and Population (HNP) Discussion Paper Enhancing Efficiency and Equity: challenges and reform opportunities facing health and pension systems in the Western Balkans Caryn Bredenkamp a, Michele Gragnolati b and Vedad Ramljakc a Health Specialist, Human Development Network (HDNHE), The World Bank, Washington DC, USA b Senior Economist; Europe and Central Asia Human Development Sector Unit (ECSHD), The World Bank Country Office, Sarajevo, Bosnia and Herzegovina c Health and Social Protection Consultant, Europe and Central Asia Human Development Sector Unit (ECSHD), The World Bank Country Office, Sarajevo, Bosnia and Herzegovina Abstract: This collection of papers explores the major challenges to the sustainability of health and pension system financing in the countries of the Western Balkans – Albania, Bosnia and Herzegovina, the Former Yugoslav Republic of Macedonia, Montenegro, Serbia and the province 1 of KosovoF F. It focuses on how the incentives created by the different elements of the financing arrangements affect the behavior of providers and individuals, and the resulting inefficiencies in revenue collection and expenditure containment. The volume commences with an analysis of healthcare financing, exploring patterns of healthcare expenditure, examining the key drivers of current healthcare expenditure and the most significant barriers to revenue generation. Subsequent chapters give special attention to provider payment mechanisms and the pharmaceutical sector. Equity considerations are highlighted in a chapter that explores the protection that is offered against the financial impact of health expenditures. With respect to the pension sector, the volume provides an overview of national pension systems and outlines the main challenges to achieving a sustainable balance between pension benefits and costs. The analyses of the health and pension reform process are placed within the context of the labor market challenges in the sub-region, especially as they relate to the ability to raise revenue for health and pensions through payroll contributions. All chapters conclude by identifying some reforms that countries in the sub-region could consider in order to enhance the efficiency and sustainability of their systems. Data are drawn from international databases, country institutions, and household surveys. Keywords: Balkans, Eastern Europe, access to health care, regulation, health financing, pharmaceuticals, pension reform, labor costs Disclaimer: The findings, interpretations and conclusions expressed in the paper are entirely those of the authors, and do not represent the views of the World Bank, its Executive Directors, or the countries they represent. Correspondence Details: Health, Nutrition & Population, Human Development Network; The World Bank, 1818 H St. NW, Washington DC 20433, USA, Mail stop G7-701 Phone: 202- 473-1456 (Caryn Bredenkamp); 387-33-251-502 (Michele Gragnolati); 387-33-251-523 (Vedad Ramljak) 1 Under United Nations Security Council Resolution 1244 (1999) ACKNOWLEDGEMENTS The papers presented in this volume were conceptualized and coordinated by a team led by Michele Gragnolati, Gordon Betcherman and Anita Schwarz. Caryn Bredenkamp, Michele Gragnolati and Vedad Ramljak were responsible for coordinating and finalizing the report. Authors of individual chapters include: Caryn Bredenkamp, Michele Gragnolati, Aizhan Imasheva, Vedad Ramljak, Andreas Seiter, Pia Schneider, Anita Schwarz (World Bank), Mihail Arandarenko and Vladimir Vukojevic (University of Belgrade), and Mariapia Mendola (Bocconi University). The study was carried out under the supervision of Arup Banerji and Armin Fidler (World Bank). Contents CHAPTER 1: INTRODUCTION 9 Vedad Ramljak, Michele Gragnolati, Caryn Bredenkamp CHAPTER 2: SUSTAINABILITY OF HEALTHCARE FINANCING IN THE WESTERN BALKANS: AN OVERVIEW OF PROGRESS AND CHALLENGES 12 Caryn Bredenkamp, Michele Gragnolati 1. BACKGROUND 12 2. GEOGRAPHICAL SCOPE, DATA SOURCES AND LIMITATIONS 13 3. ENSURING SUFFICIENT REVENUES 14 4. ENCOURAGING EFFICIENT EXPENDITURES 23 5. MOVING FORWARD 38 CHAPTER 3: PROVIDER PAYMENT REFORMS: LESSONS FROM EUROPE AND THE US FOR SOUTH EASTERN EUROPE 44 Pia Schneider 1. BACKGROUND 44 2. PURCHASING HEALTH CARE 46 3. PAYING FOR PRIMARY HEALTH CARE 49 4. PAYING FOR HOSPITAL CARE 52 5. PAY FOR PERFORMANCE 58 6. DISCUSSION AND CONCLUSION 63 CHAPTER 4: THE PHARMACEUTICAL SECTOR OF THE WESTERN BALKAN COUNTRIES 70 Aizhan Imasheva, Andreas Seiter 1. BACKGROUND 70 2. PHARMACEUTICAL LEGISLATION AND ADMINISTRATION 71 5 3. DRUG EXPENDITURE MANAGEMENT 71 4. DRUG PRICE REGULATION 77 5. REIMBURSEMENT 78 6. PHARMACEUTICAL MARKET AND MANUFACTURERS 79 7. WHOLESALERS 80 8. PHARMACIES AND PHARMACISTS 81 9. ACCESS AND EQUITY ISSUES 82 10. GOVERNANCE AND CORRUPTION 83 11. RATIONAL USE OF DRUGS 83 12. ASSESSMENT AND RECOMMENDATIONS 83 CHAPTER 5: THE IMPOVERISHING EFFECT OF HEALTH EXPENDITURES: EVIDENCE FROM THE WESTERN BALKANS 88 Caryn Bredenkamp, Mariapia Mendola, Michele Gragnolati 1. BACKGROUND 88 2. CONTEXT, DATA, AND MEASUREMENT 89 3. ECONOMIC DISPARITIES IN HEALTH EXPENDITURE: DESCRIPTIVE STATISTICS 91 4. EFFECT OF HEALTH EXPENDITURES ON POVERTY 94 5. DISCUSSION OF FINDINGS 97 6. CONCLUSION 99 CHAPTER 6: PENSION REFORM IN THE WESTERN BALKANS 102 Anita Schwartz I. PENSION REFORM ISSUES 102 2. PENSION SYSTEM DESIGN 110 3. POTENTIAL FOR REDUCING CONTRIBUTION RATES 113 4. LOOKING TO THE FUTURE 115 6 CHAPTER 7: LABOR COSTS AND LABOR TAXES IN THE WESTERN BALKANS 119 Mihail Arandarenko and Vladimir Vukojevic 1. BACKGROUND 119 2. LABOR MARKET CONTEXT 120 3. MACRO FISCAL TRENDS (CONSOLIDATED GOVERNMENT EXPENDITURES AND FISCAL BALANCE) 126 4. WAGE AND LABOR COST TRENDS 129 5. STATUTORY RULES FOR PERSONAL INCOME TAXES AND SOCIAL SECURITY CONTRIBUTIONS 146 6. EFFECTIVE PIT AND