n o i t p CORRUPTION IN THE u r r HEALTH CARE SECTOR OF o

C POST-COMMUNIST t s WELFARE STATES: A CASE n i

a STUDY OF ESTONIA AND g

A LATVIA y t e i c A report by Leonie Dirks o Sponsored by the Romanian Academic Society and the Hertie S

School of Governance l i v i Corruption in the health care sector is an issue of serious concern, since

C it can impede access to medical services, reduce the resources available for health care and lower the quality of medical services. Governments have an interest in tackling corruption not only because the health and life of their population is endangered, but also because corruption reduces the legitimacy of the state and democracy and has severe negative macroeconomic effects.

i Student Master Thesis Advisor Partner Institution

Leonie Dirks Klaus Hurrelman German Federal Ministry of Health 081785 Ortwin Schulte Master of Public Policy Class of 2011

Statement of Authorship I hereby certify that this Master Thesis has been composed by myself and describes my own work, unless otherwise acknowledged in the text. All references and verbatim extracts have been properly quoted and all sources of information have been specifically and clearly acknowledged.

DATE: April 9th, 2011

ii Contents Contents ...... iii List of Abbreviations ...... v List of Figures and Tables ...... vi Executive Summary ...... vii Part 1: Corruption in the health care sector as policy problem ...... 1 Introduction ...... 1 Corruption in the health care sector as policy problem ...... 2 Corruption in Estonia and Latvia – Rationale for choosing these countries ...... 4 Part 2: Theoretical Analysis ...... 5 Post-soviet countries and the welfare state ...... 6 The welfare state and the principle of universalism ...... 6 Communist welfare states ...... 8 Post-communist welfare states ...... 9 The issue of corruption ...... 11 Definition ...... 11 Corruption in the health care sector ...... 13 Corruption in the health care sector of post-soviet countries ...... 18 Why should governments care? ...... 20 Part 3: Comparative Case Study of Estonia and Latvia ...... 22 Methodology for case study ...... 22 Estonia and Latvia ...... 23 Welfare state and health systems ...... 23 Corruption in Estonia and Latvia ...... 27 Anticorruption legislation and initiatives ...... 31 Applying Vian’s framework for assessing vulnerabilities to the health care sector ...... 35 Monopoly ...... 35 Discretion and accountability ...... 36 Citizen’s voice ...... 38 Transparency ...... 40 Enforcement ...... 41 Incentive structures ...... 43 Social norms ...... 44 Part 4: Preliminary results, Policy Recommendations and Conclusion ...... 47

iii Preliminary results ...... 47 Policy recommendations ...... 50 Concluding remarks ...... 52 Bibliography ...... VII Annex ...... XV

iv List of Abbreviations

BACI Baltic Anticorruption Initiative BMG German Federal Ministry of Health (Bundesministerium für Gesundheit) CEE Central and Eastern European Countries CIS Commonwealth of Independent States CPI Corruption Perception Index EHFCN European Healthcare Fraud and Corruption Network EU European Union EU12 EU member states that joined in 2004 and 20071 EU15 EU member states before 20042 GDP Gross Domestic Product GP General Practitioner GRECO Group of States against Corruption IMF International Monetary Fund KNAB Corruption Prevention and Combating Bureau MDG Millennium Development Goals MOH Ministry of Health MOJ Ministry of Justice NATO North Atlantic Treaty Organization NGO Non Governmental Organization PETS Public Expenditure Tracking Surveys OECD Organization for Economic Development and Co-Operation PHC Primary Health Care PPP Purchasing Power Parity SCHIA State Compulsory Health Insurance Agency SU Soviet Union TI Transparency International UNCAC United Nations Convention Against Corruption UN United Nations WHO World Health Organization

1 The group includes: Bulgaria, Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, Slovakia and Slovenia. 2 The group includes: Austria, Belgium, Denmark, Germany, Finland, France, Greece, Great Britain, Italy, Ireland, Luxemburg, Netherlands, Portugal, Sweden and Spain. v List of Figures and Tables

Figures Figure 1 Framework of Corruption in the health care sector...... 15 Figure 2 Evolution of Corruption by Regime Type...... 45 Figure 3 Health expenditure per capita in the European Union, 1995 and 2008...... XV Figure 4 Health expenditure per capita in CEE and CIS, 2003 and 2007...... XVII Figure 5 Public health expenditure in the European Union, 2003 and 2007...... XVIII Figure 6 Public health expenditure in CEE and CIS, 2003 and 2007...... XIX Figure 7 Infant mortality rate in the European Union, 1990, 1995 and 2008...... XX Figure 8 Infant mortality rate in CEE and CIS, 1990, 1995 and 2008...... XXI Figure 9 Maternal mortality ratio in the European Union, 1995 and 2008...... XXII Figure 10 Maternal mortality ratio in CEE and CIS, 1995 and 2008...... XXIII

Tables Table 1 Selected list of corrupt practices and their (potential) impact...... 17 Table 2 Estonia’s and Latvia’s performance in the Corruption Perception Index and in the Control of Corruption Indicator...... xxiv Table 3 Excerpt from the Estonian Implementation Plan for the Anticorruption Strategy 2008- 2013...... xxiv

vi Executive Summary

Corruption in the health care sector is an issue of serious concern, since it can impede access to medical services, reduce the resources available for health care and lower the quality of medical services. Governments have an interest in tackling corruption not only because the health and life of their population is endangered, but also because corruption reduces the legitimacy of the state and democracy and has severe negative macroeconomic effects.

This is a major issue for post-communist transition economies in particular, which were confronted with a collapse of their welfare sectors, while simultaneously dealing with the transition to democracy and economic reforms. Studies suggest that some countries did better than others in the past twenty years, to lower corruption levels and create more effective health systems.

On the basis of a theoretical discussion of welfare state development in post- communist countries, this paper discusses the issue of corruption in the health care sector. By means of a case study of Estonia and Latvia, the author compares factors that are likely to influence corruption in the health care sector and analyzes how these factors have been addressed in both countries.

Both states managed to improve health outcomes and diminish corruption levels in the past twenty years, although Estonia is performing better than Latvia in all observed indicators. Only recently have attempts been made to target corruption in the health care sector specifically; therefore, any reduction of corruption levels in the health care sector cannot be attributed to these sectoral initiatives.

Measures to limit monopoly and discretion, to increase accountability and transparency and to strengthen enforcement have helped to reduce corruption levels. The strength of citizen’s voice plays a key role in the fight against corruption in the health care sector. In conclusion, based on the findings of the case study, the paper gives policy recommendations that may help other transition economies tackle the issue of healthcare corruption.

vii Part 1: Corruption in the health care sector as policy problem

Introduction

In Moldova a mother bringing her seriously injured child to a hospital is charged informal payments, before the personnel let her enter the clinic.

In Uzbekistan patients are charged informal payments in exchange for clean bed sheets and relatives are charged to enter the hospital to visit patients.

In many Eastern European and Central Asian countries, families are forced to sell all their belongings in order to bribe health professionals for health care.

These real stories about corruption in the health care sector illustrate problems people face while trying to get access to basic health care services - which are in most states supposed to be free of charge. Corruption is generally defined as ‘the abuse of entrusted power for private gain’ (Transparency International 2006). By abusing entrusted power for private gain in the health care sector, health care professionals are violating public trust in the health system. This abuse of public trust not only violates the human right to health (Universal Declaration of Human Rights 1948), it has also major negative consequences for the society’s trust in state institutions and the national economy as a whole.

States have an interest in caring about corruption in health systems for several reasons. Corruption endangers the core idea of “the state’s responsibility for securing some basic modicum of welfare for its citizens” (Esping-Andersen 1990: 19), including the guarantee and protection of equitable access to health care services, it reduces the legitimacy of the state and democracy (Tanzi 1998) and has severe negative macroeconomic effects (Bloom et al. 2001).

This is a major issue for post-soviet transition economies, which were dealing with the transition to democracy and economic reforms while simultaneously confronted with a collapse of their welfare sectors. In spite of the significant role that the welfare sectors in general and health systems in particular, play as 1 safety net in transitional economies, research has largely neglected the transformation of the welfare sector in transition economies so far (Radin 2009:105).

Against this backdrop, the German Federal Ministry of Health (BMG) has asked for a case study about corruption in health systems of post-communist welfare states. By comparing two developed post-communist countries regarding the situation of corruption in their health systems, and by analyzing factors likely to influence opportunities for corruption and measures to address them, policy recommendations will be developed that ideally could help less developed transition states address the issue. Practical use of the results of this work could help improve future project design for the BMG, thereby ensuring equitable access to health systems and a sustainable effect of German foreign assistance on health system development.

Corruption in the health care sector as policy problem

Governments generally have a special interest in ensuring their populations good health. Not only is good health an end in itself, but several macroeconomic studies show that it has a positive, statistically significant effect on economic growth (Bloom et al 2001, Aguayo-Rico 2005). Especially in the light of tight budgets, governments additionally have a special interest in spending their resources for health efficiently and effectively. This aim is endangered by corruption in the health care sector.

A study published by the European Healthcare Fraud and Corruption Network (EHFCN) estimates that approximately 180 billion Euros are lost every year due to healthcare corruption and fraud globally, 56 billion Euros within the European Union (EU) alone (Gee et al. 2010). Public perception surveys second the assumption that health care sectors are severely affected by corruption.3

3 According to Eurobarometer 325 in 2009, 32 % of EU citizens think that the giving and taking of bribes and the abuse of positions of power for personal gain are widespread among people working in the public health sector. The perception of corrupt behavior within the health sector differs widely between countries in the EU (82 % in Greece and 7 % in Finland). Citizens of EU12 are on average much more likely to believe that there is widespread corruption in their 2 Corruption in the health care sector constitutes a sensitive issue, since it can impede access to medical services, reduce the resources available for health care, may increase the cost for the provision or lower the quality of medical services (Gupta et al. 2000). This should be a concern for every government worldwide, since the health and lives of their population might be endangered. It is, however, an even more pressing issue for developing and transitional welfare states, where health systems are still underdeveloped and government resources for health are scarce anyway.

The special importance of health for development is manifested in the United Nation’s Millennium Development Goals (MDG), in which three out of eight goals refer to health directly. Many countries use the MDGs as the basis for their investments in developing programs. Donors of course have the legitimate interest, that their resources are spent for their intended purpose and are not lost to corruption.

In order to assist health system development, the BMG supports different health projects in post-communist countries. It has a specific interest in encouraging health system reforms in partner countries to lower the disease burden and improve health outcomes. As a federal government body, it has the obligation to ensure that funds are spent in an efficient way and benefit the general population of the partner country. Studies of corruption in post-communist countries show that corruption in the form of fraud in procurement and informal payments is a serious obstacle to health system reform (Lewis 2000, Radin 2009). These results match the field experience in BMG projects.

After the collapse of the Soviet Union in 1991, the health care sectors of all post-soviet countries have been confronted with comparable challenges as heritage of the so called Semashko Model. The centralized Soviet health system was entirely funded by state budget. It focused on hospital-delivered services and was characterized by excessive physical infrastructure and overcapacity. In the light of declining revenues, health expenditure fell in most of the countries and resulted in the existence of large health systems with public health sector than those living in the EU 15 (54% vs. 26%). 3 outdated medical equipment and underpaid staff. Infrastructural overcapacity did coincide with a critical shortage of health care services. To meet the deficit in resources, efforts have been made to require patients to officially pay the cost of treatment, but corruption in form of informal payments has been emerging as a basic aspect of health care financing (Lewis 2000: 1).

Studies suggest that some countries (Czech Republic, Estonia) have been more successful in improving their health systems and outcomes, than others (Russia, Moldova). At the same time, those countries have been more successful in lowering corruption levels (Radin 2009). Given their common communist past, similar starting conditions and similar experiences with the transitional process, it is striking that corruption levels and health outcomes differ significantly. Through a theoretical discussion of welfare state development and the issue of corruption in health care sectors, the author performs a case study, comparing two post-communist countries that have managed to improve health outcomes and reduce corruption levels. This paper will look at their welfare state and health system development and analyze the corruption in their health care sectors. In addition, different factors likely to influence possibilities for corruption and anticorruption measures these states have taken will be investigated and discussed. The main aim is to develop policy recommendations for other post-soviet transition economies to tackle the issue of corruption in health care sectors.

Corruption in Estonia and Latvia – Rationale for choosing these countries

Within the group of post-soviet countries, the Baltic States are suitable for a comparative analysis. Having shared a communist legacy and faced similar problems after the collapse of socialism (privatization, inflation and growing unemployment), they managed to diminish corruption levels and improve health outcomes considerably in the past 20 years. Besides their geographic proximity they share the experience of fifty years under Soviet rule and economic collectivism. After declaring independence in 1990-1991, the Baltic States strived quickly for a democratic political system, an introduction of a market 4 economy and a reorientation towards Western Europe; they also sought membership in NATO and the EU. In spite of individual historical, cultural and religious traditions, the countries comprise a rather homogenous group, making them comparable (Aidukaite 2004). Due to the aim to deliver a substantial analysis and the limited scope of this paper, the comparison will limit itself to two countries out of the Baltic States: Estonia and Latvia.

Although both countries have managed to improve health outcomes and diminish corruption levels considerably, perceived corruption levels and health outcomes between them still differ. While Estonia is ranked as the 26th least corrupt country, Latvia is ranked 59th in Transparency International’s Corruption Perception Index (2010).4 This hierarchy seems to be suitable for the health care sector as well. 31 % of Estonians think that the giving and taking of bribes and the abuse of positions of power for personal gain are widespread among people working in the public health care sector, while 55 % of Latvians do think so. Eight percent of Latvians were asked to pay a bribe for services in the public health care sector, compared to only 1 % in Estonia (Eurobarometer 2009). While according to WHO Data, health expenditure per capita (PPP, in constant 2005 international $) is comparable, with an expenditure of 1112 $ in Latvia and 1226 $ in Estonia (2008), health outcomes differ. The infant mortality rate (per 1000 live births) in Estonia is 5 compared to 8 in Latvia (2008) and maternal mortality rate (per 100,000 live births) in Estonia is 12 compared to 20 in Latvia (2008).5

Part 2: Theoretical Analysis

Part 2 will provide a theoretical analysis of welfare state development and face the issue of corruption, by introducing the concept of welfare states and providing a theoretical analysis of welfare state development in the Soviet Union and in post-soviet countries (Chapter 2.1). An analysis of the issue of corruption in general and its specific occurrence in the health care sector (Chapter 2.2) will

4 The Corruption Perception Index measures the perceived levels of public sector corruption in 178 countries worldwide. 5 See Annex Figures 3-10 for comparison with EU, CEE and CIS region countries. 5 lead to a discussion about its significance in post-communist welfare states (Chapter 2.2.3) and the relevance of the issue for respective governments (Chapter 2.2.4).

Post-soviet countries and the welfare state

The welfare state and the principle of universalism

The origins of the western welfare state date back to the 19th century and are associated with deep economic, political and societal transformations in Europe. Industrialization and urbanization undermined traditional forms of welfare provision offered by family networks and churches, eventually resulting in a pauperization of large parts of population. This led to the development of modern social policies, in academic literature often exemplified by Bismarck’s attempt to create some form of institutionalized solidarity with the establishment of the first sickness and pension insurance system in 1889 (Cerami 2006: 40).

The concept of welfare states has been subject to lively discussion in comparative research. A common definition describes the welfare state as “the state’s responsibility for securing some basic modicum of welfare for its citizens” (Esping-Andersen 1990: 19). This definition might not be sufficient in absolute terms, since it bypasses the emancipatory character social policies may have for the individual and bypasses, what is meant by basic welfare. It is however still useful in relative terms to get an immediate idea about what the welfare state stands for.

Esping-Andersen introduced a widely accepted typology scheme for the classification of Western welfare states in his book The Three Worlds of Welfare Capitalism (1990), amplifying the above-mentioned definition. He distinguished three ideal types of welfare states, namely liberal, social democratic and conservative - corporatist welfare states. He described ideal models, based on the degree of social stratification, decommodification and the interplay of state, market and family regarding social provisions. Although his typology has been criticized (Ferrera 1996, Bonoli 1997), it is still today the

6 most widely used classification in welfare state research, and will be referred to in this master thesis.

The central idea of the state’s responsibility to secure welfare for its citizens, thereby promoting universal social inclusion of all citizens, was considered increasingly important by state leaders at the end of the 19th century and led to the establishment of welfare states. Although there were differences in Western welfare state development, all these developments were characterized by increasing levels of state intervention and rising public expenditure (Castles et al. 2010). Despite the fact that not all early programs included the whole population, the idea of universalism has been an element of welfare state building from the beginnings (Kildal and Kuhnle 2005). Acknowledging the conceptual polysemy of universalism in welfare state research6, this work refers to the principle of universalism in a way that acknowledges the attribution of social rights to people by the merit of their status as citizens of a specific country. The universal norm applies equal treatment to everyone from the state, regardless of the group to which one belongs. More specifically, the term universal will be used in this work to describe a mode of access to welfare systems for each and every citizen, not implying universal eligibility.

In accordance with Aidukaite, this paper understands the welfare state as a government’s obligation to ensure a decent standard of living for its citizens, given as a social right including health care (2004: 24). It is argued that all welfare states embrace the concept of universalism in principle, since they take on the responsibility for securing basic welfare for all citizens, taking of course into account that different welfare states translate this principle into welfare programs to a different extent. Regarding health systems, the minimal realization of this principle would imply that all welfare states are aiming at securing equal access for equal needs of citizens to health care services. Although the author agrees with Titmuss, who argues that: “Universalism is not, by itself alone, enough in medical care […]” (Titmuss: 1968: 134), the following part shall examine how the Soviet type of welfare state realized the principle of universalism in the sense of providing equitable access to its health system.

6 Kildal and Kuhnle define it as “the general, what concerns everything of a special kind, or the totality” (2005: 13). 7 Communist welfare states

The breakdown of the Soviet Union (SU) did not only represent the end of a political and economic system, it also constituted the end of the Soviet type welfare state. Not entirely fitting into standard Western typologies, it can be most tellingly characterized as authoritarian-paternalist, featuring elements of Esping-Andersen’s redistributive-universalist and status-reinforcing conservative models (Cook 2010). Despite small cross-national differences, social policies evolved in a uniform way throughout the SU and represented an important source of regime legitimization (Potůč ek 2009: 100). The Soviet type of welfare state - Kornai (1992) describes it as premature welfare state - was characterized by the state serving as main provider for welfare services to broad populations at low standards of provision and financing them via the state-budget. The state provided free health care, employment, housing, public pensions and a safety net for those incapable of working (Cerami 2006: 50).

In theory, the welfare state would provide for universal access to and coverage of the social security system (Offe 1993) and promote equality within classes and social groups through extensive social policies (Aidukaite 2004). The state made efforts to expand the coverage of social services (e.g. health programs), which were originally limited to government functionaries and employees in state-owned enterprises, to the agricultural population in the 1960s. That was followed by the enshrinement of universal access to social services as a legal right (Kaser 1976: 36). Studies suggest, however, that de facto coverage and access was, in reality, not universal; the party nomenclatura and those who pulled strings through blat (informal networks) profited a lot more from the benefits of the welfare state than other social groups (Deacon 1992, Rose 2006, Haagard and Kaufman 2008). As Potůč ek states, three principles of socialist welfare developed: “the association of access to social services to work performance, general commitment to equality, and special treatment for the privileged” (2009: 101).

8 This situation applied also to the health system, which was chronically underfunded. Due to great demand and shortage problems, the health system was confronted with crowding in clinics and hospitals, long queues in waiting rooms and waiting lists for hospital beds, examinations, and long-postponed surgeries (Kornai and Eggelstone 2001). This situation resulted in declining health conditions and rising corruption levels. Although health services in theory were free and universal, in practice, users could only secure service by informal payments (Deacon 1992, Barr 1996, Rose 2006). By the 1980s this development had resulted in a complex and highly regularized system of informal payments, which generated growing resentment in the population and eroded the welfare state (Haagard and Kaufman 2008: 173).

Mungiu-Pippidi refers in her work about corruption in patrimonial or absolutist regimes to a “mode of social organization characterized by the regular distribution of public goods on a nonuniversalistic basis that mirrors the vicious distribution of power within such societies” as particularism, representing the norm in those countries (2006: 87). This mode of social organization runs contrary to universalism, where the norm assumes that public goods (as health care) are distributed equally. The non-universal, but particularistic character of social organization also characterized the welfare state and health system in the SU. Treatment depended on people’s status or position in society. It was however not limited to the nomenclature anymore, but expanded to the normal citizen, who was willing or able to bribe.

Post-communist welfare states

The collapse of the Soviet system in 1989 and its political, economic and social consequences, posed big challenges to the post-soviet countries. In addition to the economic and political challenges, the countries were faced with severe social problems, such as rising poverty levels, increasing demand for welfare services and declining health conditions. Due to mass unemployment and a growing informal economy, contributions to social insurance budgets decreased significantly (Szirka and Tomka 2009: 28). Governments were trapped between commitments to provide welfare for their citizens and pressures by international 9 organizations, such as the IMF and the World Bank (Orenstein 2009) to restructure their economies, cut social expenditures and adopt more market- oriented welfare models (Cook 2007).

Welfare state development after 1990 was not uniform across the region and produced different welfare outcomes in the new capitalist democracies. Although welfare state research originally focused on western capitalist democracies, there have been several attempts to classify the types of emerging welfare regimes in Central and Eastern European Countries (CEE)7 in the framework of the Esping-Andersen models (Ferge 1992, Esping-Andersen 1996). Most of these attempts classify them in the liberal regime, “characterized by a mix of social insurance and social assistance and a partial privatization of social policy” (Aidukaite 2004: 54).

According to Szirka and Tomka, we can however observe common features that make the label post-communist welfare state applicable (Szirka and Tomka 2009: 17).8 According to Aidukaite (2009), the label post communist welfare state incorporates a mixture of elements taken from the liberal and conservative-corporatist welfare regimes as well as some distinct features of the post-communist societies, including a high take up rate of social security but relatively low benefit levels and a low level of trust in state institutions.

While early reforms in CEE concentrated on the reduction of the state’s role and a turning away from the command economy, the transition was not that radical in social welfare areas, like health care (Hagaard and Kaufman 2001). Despite macroeconomic problems and the call for more market-oriented welfare models, the first years of economic transition did not witness a significant decrease in social expenditures (Szirka and Tomka 2009: 28). Although many CEE countries carried out rather liberal reforms in their welfare states, soon after independence, most of them developed towards more Western welfare states in the sense that the principle of universalism became more and more important. According to polls, the existence of universalistic social welfare arrangements

7 The group of Central and Eastern European Countries (CEE) referred to in this work comprises: Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania and Slovakia. 8 Cerami (2005) proposes the emergence of an Eastern European Welfare Model with pre- communist (Social insurance Bismarck style), communist (universalism and egalitarism) and post-communist (market-oriented) characteristics. 10 was, especially in health care, very important to the majority of the electorate (Ferge 2001: 151).

Although most CEE governments realized the need to redefine roles of the state and private providers in welfare systems in general and health systems in particular, while maintaining equitable access to a comprehensive range of benefits since the mid 1990s, not all states managed to do so. Most CEE countries and societies have attempted to make the transition from a societal system in which particularism was the norm, to a system where universalism is the norm, but the distinction between public and private remains blurred. Welfare Systems in CEE today are to a certain extent still particularistic. Corruption levels in CEE countries are still considerably high and undermine universal or equitable access to health care services.

The issue of corruption

Definition

Defining corruption is certainly not an easy task. Measuring it is even more difficult. Even the most sophisticated definition may err on the side of over- simplification, due to the complexity of the phenomenon and it’s usually hidden character. There have been a lot of attempts to define the term (Heidenheimer and Johnston 1989, Klitgaard 1991, et al.), however none of them is universally accepted and none applies to all forms, types and degrees of corruption. The two most common definitions of corruption are those by Transparency International (TI), which defines corruption as ‘the abuse of entrusted power for private gain’ (TI 1996: 1) and the World Bank (WB), which defines corruption as ‘the misuse of public office for private gain’ (Kaufmann 2006: 82). Most would agree with the United Nations (UN) definition of corrupt acts as such ‘entailing a confusion of the private with the public sphere’ or an ‘illicit exchange between the two spheres’ (UN 2001: 7).

Corruption occurs in different forms, such as bribery, extortion, nepotism, fraud, embezzlement, cronyism, appropriation of public assets and property for private

11 use, influence peddling, etc. (Myint 2000: 35) and can according to Tanzi (1998: 565) be classified into seven categories:

1. bureaucratic (‘petty’) or political (‘grand’)

2. cost-reducing or benefit enhancing

3. briber-initiated or bribee-initiated

4. coercive or collusive

5. centralized or decentralized

6. predictable or arbitrary

7. involving cash payments or not.

Measuring corruption is difficult, because it is a complex object, which cannot be measured directly, hence the precision of measurements cannot be perfect. Nonetheless attempts to measure corruption can be subdivided into three broad ways:

- by gathering the informed views of relevant stakeholders and measuring perceptions

- by tracking countries' institutional features and

- by audits of specific projects (Kaufmann, Kraay and Mastruzzi 2006).

Most scholars agree, that corruption’s effects on a country are mostly negative (Murphy, Shleifer, and Vishny 1991, Tanzi 1998, et al.), although there are some scholars arguing that corruption may have positive effects for national economies, through a positive level effect on allocative efficiency (Lui 1985, Tullock 1996). Corruption reduces the ability of the state to impose necessary regulatory controls and inspections to correct for market failures, enforce contracts or protect property rights, thereby reducing legitimacy of the state and democracy (Tanzi 1998). In addition, corruption causes rising transaction costs, which affect economic growth and investment negatively and thereby hamper

12 the competitiveness of national economies (Mauro 1997). Academic literature agrees that the consequences of corruption on national economic competitiveness, the rule of law and democracy are so grave, that corruption needs to be prevented (Mauro 1997, Rose-Ackermann 1999, Elliott 1997, Heidenheimer and Johnston 2002).

Corruption can, according to Klitgaard (1998: 4), be presented as a formula: C= M + D – A. Corruption (C) equals monopoly (M), plus discretionary power (D), minus Accountability (A). Corruption will accordingly be greater, when an individual or an organization has monopoly power, has discretionary power and is not accountable. To combat corruption, governments must address these factors by designing better public systems that reduce monopolies, clarify discretionary powers, introduce accountability mechanisms, enhance transparency and involve citizen’s voice. In addition, penalties for corruption must be deterrent, credible and enforceable (Klitgaard 1998). There is evidence that the extent of corruption is less likely in societies where there is broad adherence to the rule of law, transparency and trust, and where the public sector is ruled by effective civil service codes and strong accountability mechanisms (Savedoff and Hussmann 2006: 4).

Corruption in the health care sector

Corruption occurs in many sectors of society. It takes manifold shapes and is not limited to any particular kind of political or societal system. The health care sector may however be affected more severely by corruption, because it is a comparatively very attractive target given the huge flow of public funds9 and because private actors are often entrusted with public roles. When those actors proceed in a dishonest way, enriching themselves, they are not formally ‘abusing public office for private gain’, since they are not holding public office as such. But they are abusing the public’s trust in the sense that private actors engaged in health care services are assumed to have professional

9 More than 3.1 trillion US$ are spent on health services each year, most of it financed by governments (Savedoff and Hussmann 2006: 4). 13 responsibility to act in the best interest of patients (Savedoff and Hussmann 2006).

Coming back to Klitgaard’s formula of corruption (C= M + D – A), people are more likely to engage in corruption where a monopoly exists, where individuals rewards for corruption are great, and where the likelihood of being caught and punished is low. Applying this formula to the health care sector helps to identify certain factors that increase opportunities for abusing power. Vian (2008) identifies monopoly, discretion, accountability, citizen’s voice, transparency and enforcement as factors influencing the existence of opportunities for the abuse of power in the health care sector. He understands corruption in the health care sector as a combination of the opportunity to abuse and pressures to do so, mainly caused by detrimental incentive structures (see Figure 1). People then use rationalization to justify their behavior.

Opportunities for abuse are more frequent, when:

- a person or institution has monopoly powers and discretion without sufficient control,

- accountability and transparency are lacking,

- citizen’s voice is not loud enough and/or

- abuse of entrusted power for private gain is not punished.

The application of this framework to the patient-doctor relationship is illustrative: patients feel pressured by physicians to pay bribes because they don’t have an alternative (monopoly); physicians have the opportunity and power to abuse (discretion and lacking accountability) and feel pressured to do so because of low wages or because the choice of treatment may affect their income (detrimental incentive structures) and control, supervision and enforcement mechanisms are lacking (transparency, enforcement and citizen’s voice). Social norms, moral beliefs, individual attitudes and personality influence the readiness to accept corruption and constitute the basis for the individual justification of corrupt behavior.

14 Figure 1 Framework of Corruption in the health care sector

S ource: Vain, Taryn (2008): “Review of corruption in the health sector: theory, methods and interventions”, in: Health Policy and Planning, 2008.

Particular vulnerability of the health care sector

The health care sector is particularly vulnerable to corruption since it embodies distinctive features, resulting from inherent market failure. Uncertainty is a central characteristic of the health care sector, which makes health insurance markets and medical care markets likely to be inefficient and leads to an asymmetry of information. Patients mostly do not know when they are going to fall ill nor what disease they may get. Doctors know more about drugs and treatments than patients; drug companies know more about their products than doctors and patients; and so on. The extent of uncertainty is however not equally distributed across all actors in the health care sector. This asymmetry of information leads to different problems characterizing the health care sector:

• The Principal Agent Problem or Agency Dilemma describes a situation, in which a ‘principal’ hires an ‘agent’, but the agent’s interest differs from the principal’s interest and the principal cannot get complete information about the agent’s output, leading to the formation of non-optimal contracts. This situation applies to many actors in the health care sector, exemplified by patients ‘hiring’ physicians to act as their agents in diagnosing and treating diseases. Patients rely on their ‘agents’, and while physicians have an

15 interest in improving the health of the patient, at the same time, their choice of treatments may also affect their income, status, etc.

• Adverse Selection refers to the practice of health insurers granting coverage to individuals with ‘desirable’ health status and low-risk profiles while denying coverage to vulnerable population groups with high-risk profiles (poor, old and/or chronically ill people). Where mandatory public health insurance schemes are missing, the ability and obligation to pay limits those vulnerable groups from obtaining access to health care services (Lewis 2006: 4).

• Moral Hazard arises, because a person or institution does not take full responsibility for its actions and acts less carefully than it would otherwise, due to the fact that another party has to take full responsibility for the consequences of the action. Health insurers are faced with over- consumption by insured individuals, who do not face the real cost of health care and the overproduction of care by physicians when third parties cover costs (Lewis 2006: 4).

The predominant uncertainty in the health care sector and the described market failures combined with the interaction of a large number of dispersed actors in the system, makes the vulnerability to corruption a systemic characteristic of health systems.

Forms of corruption in the health care sector

Corruption in the health care sector is not limited to a single form of corruption, but appears in different shapes (see Table 1). While corruption is generally difficult to measure, it is especially so in the health care sector. Because healthcare involves elements of fear and anxiety, and life-or-death decisions, corruption is often hidden and extremely difficult to detect (Gaal et al. 2006). Key tools used to measure corruption in the health care sector include Corruption Perception Surveys and Public Expenditure Tracking Surveys (PETS). The limited amount of English literature on the topic concentrates on the causes and effects of informal payments for health care (Lewis 2000, Gaal and McKee 2004, Radin 2009), corruption in the pharmaceutical sector (Cohen

16 et al. 2002, Fidler and Msisha 2008, Lindenlaub and Schönstein 2008) and corruption in hospitals (Vian 2006, Di Tella 2001).

Table 1 Selected list of corrupt practices and their (potential) impact

Type oType of Explanation Impact Corruption Informal payments Payments given to health Reduce access to care, providers which are greater undermine equity in access, than “official” fees, or for increase financial burden on services that are supposed to patients be free Selling government When a senior official requires Increases likelihood of posts a payment from government unqualified staff, people may agents to secure or keep their feel pressure to abuse power position in order to finance the “purchase” of their job Absenteeism Stealing time by not coming to Reduces access to and work, or private practice provision of services during working hours Bribes Money or something of value Bribes in medicines promised or given in registration, selection and exchange for an official action procurement can result in high cost, inappropriate, or duplicative drugs, or subtherapeutic or fake drugs allowed to the market Procurement Encompasses many types of Procurement corruption raises Corruption abuse including bribes, the price paid for goods and kickbacks, fraudulent services, thus increasing invoicing, collusion among inefficiency, good and suppliers, failure to audit services may not even be performance on contracts, needed, may not be delivered, etc. or may be of substandard quality Theft or misuse of Stealing or unlawful use of Results in higher unit costs, property property such as medicines, stock-outs of drugs, equipment or vehicles, for interruptions in treatment, or personal use, use in private incomplete treatment, medical practice or resale antibiotic resistance. Can impede access to care as patients stop coming to facilities Fraud Deliberate misrepresentation The siphoning off of resources with intent to secure unlawful may result in insolvency of gain. False invoicing; “ghost” insurance funds, lower quality patients or services (billing for of care, denial of care for patients who do not actually some patients or failure of exist, or services not actually programs to achieve results rendered); diversion of accounts receivables into a private account, etc. Embezzlement of Stealing or using funds that Less funding available for user fee revenues belong to an employer or a services, lower quality of care government agency Source: Vian, Taryn; Savedoff, William and Mathisen, Harald (eds.): Anticorruption in the Health Sector, Sterling (2010: 5).

17 Corruption in the health care sector of post-soviet countries

At the beginning of the 1990s post-soviet countries were confronted with the heritage of the so-called Semashko model, which was characterized by excessive physical infrastructure and overcapacity, including overstaffing of health personnel. At the same time, the welfare systems as such, and the health systems in particular, were characterized by a particularistic character. Corruption became a fundamental aspect of health care financing (Lewis 2000: 1). Specialist literature states that corruption was an integral part of the ‘grey’ economies of communist countries and “has left a legacy of corruption throughout the region, particularly in the health sector” (Rose 2006: 39). Although most states of the region have made the attempt to guarantee equal access to basic health care (Kornai 2001: 184), informal payments have been reported in all countries of the CEE and CIS region10 (except Czech Republic) (Lewis: 2006). Although different studies recognize corruption in the health care sector as a problem in CEE and CIS (Thompson 2000, Ensor 2004, Lewis 2006), research about this topic is still very limited.

According to Radin, corruption in CEE health care sectors exists in at least two forms: Misallocation of government funds and informal payments (2009: 116). The former refers to a divergence between funds that are supposed to be spent on health care and funds that are actually spent to produce desired outcomes. The latter seriously hampers access to health care service by discriminating against the poor. Both forms of corruption existed in the Semashko system and have continued into the transition era (Radin 2009: 106).

Most studies about corruption in the health care sector deal with the issue of informal payments (Lewis 2000, Kornai 2001, Radin 2009, Ponomarjova 2009). According to Lewis, informal payments can be defined as “payments to individual and institutional providers, in kind or in cash, that are made outside official payment channels or purchases that are meant to be covered by the

10 The CEE and CIS region referred to in this paper comprises: Armenia, Azerbaijan, Belarus, Bulgaria, Czech Republic, Estonia, Hungary, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Moldova, Poland, Romania, Russia, Slovakia, Slovenia, Tajikistan, Turkmenistan, Ukraine, Uzbekistan. 18 health care system” (2000: 1). The former includes “envelope” payments and the latter the value of drugs and medical materials, which should be provided by government-financed health-care services, but are purchased by patients. An informal payment is a required contribution and not discretionary.

While literature offers some insights on how the legacy of the Semashko model affected post-transition health care delivery and outcomes (Davis 2001, Kornai and Eggelstone 2001), there are so far no explanations on why some CEE have been doing better than others in changing the negative effect of corruption on health care performance. Gall and McKee (2004) consider different conditions relevant for the analysis of this subject. Firstly, all CEE and CIS countries had a health system in the SU that was corrupt and low-performing. Secondly, corrupt practices were considered a norm and were not punished by the legal system. Thirdly, patients were unable to choose between providers or to control over what kind of care they received, so they used informal payments to ease their defenselessness. Informal payments became thus an instrument to ration a scarce commodity, which was supposed to be universal and equally accessible to all.

Existing literature provides theoretical explanations for the roots of the problem. These roots can be divided in three groups: socio-cultural, legal-ethical and economic. Socio-cultural roots of the problem are based on the idea that healing traditionally creates gratitude, which is expressed in the form of informal payments (Szabó 1973). Legal-ethical roots of the problem refer to the lack of professional ethics, codes of conduct, and legal sanctions and controls, all of which influenced the spread of corruption via informal payments (Gaal and McKee 2004, Radin 2009). Economic explanations for corruption argue that under the design and operation of the Semashko system, it’s ‘freeness’ of health services and the resulting excess demand led to shortages, which caused the rise of informal payments (Petschnig 1983).

19 Why should governments care?

The very idea of welfare states, the principle of universalism, assumes that public goods are distributed equally by the state implying equitable access for citizens to health care services. This idea brings us to the normative justification, why states should care about the issue of corruption in the health care sector: Corruption endangers the minimal realization of this principle. Welfare states are according to Pierre and Rothstein (2003) also expressions of norms, values and social goals; the institutional design of welfare states thus contributes to the essential moral structure of a society. Additionally, economic studies show that effects of corruption are overall negative (see 2.1.2), due to the high socioeconomic costs they claim (Mauro 1997, Heidenheimer and Johnston 2002, Lambsdorff 2005).

What makes corruption in the health care sector particularly fatal is the direct effect on access and quality of patient care. Lewis (2007) found evidence that informal payments reduce access to health services considerably, affecting the poor and old disproportionately, because they are often in bad health and less able to offer bribes or pay for private alternatives. Gupta et al. demonstrated that corruption has “adverse consequences for a country’s child mortality, infant mortality rates, percent of low-weight births and dropout rates in primary schools” (Gupta et al. 2000: 24). Moreover, Rose states that “corruption is bad for your health”. This is justified by its direct and indirect influence: people who perceive government as more corrupt are in worse health (2006: 39) and high corruption perception correlates with the negative assessment of health services (2006: 43).

Vian found that corruption leads to a reduction of health funds to pay for salaries, equipment and maintenance. This can “demoralize staff, lower the quality of care, and reduce the availability and utilization of services” (2010: 6). Additionally, Savedoff and Mathisen (2010) point out that bribes to avoid government regulation of medicines may have serious negative effects, when they lead to the allowance of medicines with subtherapeutic value. Thus they are contributing to the development of drug-resistant organisms, eventually increasing the threat of untreatable pandemics. In a nutshell, corruption can impede access to medical services, increase the cost for the provision and 20 lower the quality of medical services. Moreover it has adverse effects on health indicators, reduces the resources available for health care and eventually increases global health threats.

How to fight it?

Corruption is a symptom of policy failure. It arises where opportunities to abuse entrusted power for private gain exist, because public systems do not fulfill their needs. Corruption flourishes where transparency, accountability, and citizen’s voice are weak and public sector and financial management capacity are low. It is crucial for policy makers to address policy failure through the design of ‘better’ public systems, which make the breeding of corruption difficult. Generally, governments and development agencies try to address the issue of corruption mainly through the development of anticorruption strategies. Most actors promote cross-sector anticorruption strategies, although academic literature agrees that additional sector-specific strategies may need to be developed for particular vulnerable sectors, such as the health care sector (Savedoff and Hussmann 2006: 4).

While some argue that there is no need for anticorruption strategies in the care sector because corruption needs to die out naturally (Kornai 2001: 201), others argue that corruption is a serious public health issue and will not disappear by itself (Hussmann 2011: 8). Hussmann (2011) finds that anticorruption strategies for the health care sector need to address certain underlying conditions that allow corruption to flourish. This brings us back to Vian (2008), who identified monopoly, discretion, accountability, citizen’s voice, transparency and enforcement as factors influencing opportunities for the abuse of power on an institutional or system level. In addition social norms and wages/incentives influence corruption. Efforts to tackle corruption need to address these factors by “translating the main principles of good governance (information, transparency, integrity, accountability, participation)“ into anticorruption strategies and “increase the likelihood of detection and appropriate enforceable sanctions” (Hussmann 2011: 8).

21 Part 3: Comparative Case Study of Estonia and Latvia

Part 3 will give an overview of welfare state and health system development in Estonia and Latvia and provide an analysis and discussion of the corruption situation and anticorruption efforts (Chapter 3.2). On the basis of the theoretical framework by Taryn Vian (2008), presented under 2.2.2, the paper will discuss how different factors influencing the existence of possibilities for corruption in the health care sector are distinct in Estonia and Latvia (Chapter 3.3).

Methodology for case study

The case study is mainly based on the analysis of key policy documents, qualitative and quantitative studies from Cockroft et al. (2010), the European Observatory on Health Systems and Policies, Transparency International Estonia and Latvia and government data. In addition, the author conducted eight qualitative interviews with government officials, researchers, civil society representatives and media. In both countries, the author interviewed representatives from the respective authority responsible for the development of the respective national anticorruption strategy, in Estonia the Ministry of Justice (MoJ) and in Latvia the Corruption Prevention and Combating Bureau (KNAB). In addition the author interviewed representatives responsible for the issue of corruption in the respective health ministry - in Estonia the Estonian Health Board, a subordinate agency of the Ministry of Social Affairs, in Latvia the Ministry of Health – and representatives from civil society organizations - Transparency International Estonia and Latvia. Furthermore, the author decided to incorporate a representative from the University of Tartu in Estonia, who is researching on the topic and a journalist from the newspaper Diena in Latvia, who is reporting about health care issues.

22 Estonia and Latvia

Welfare state and health systems

Estonia and Latvia became independent from the Soviet Union in 1991. Both are parliamentary republics and members of NATO and the EU since 2004. Latvia has a population of 2,30 million compared to 1,34 million in Estonia (2008). Both countries experienced steady economic growth rates in the 2000s 11 after having experienced economic crises in the beginning of the 1990s. Due to the financial and economic crises, both experienced steep declines in GDP growth in 2008 and 2009.12 Current GDP per capita (PPP, current international $) is at $19,451 in Estonia and $15,413 in Latvia in 2009. Despite comparatively good economic indicators, both states spend much less on social protection (12-13 % of GDP) than the EU average (26,9 %). The gini coefficient, measuring income inequalities, is consequently relatively high (37,4 in Latvia and 31,4 in Estonia compared to EU average 30.4).13

Both countries had Bismarckian welfare institutions in the form of social insurance systems established as early as 1919. The systems were financed by employer and employee contributions, but actual population coverage was low. After World War II both were incorporated into the Soviet Union and social policy was organized centrally, through employment. Everybody was employed and insured for social risks, coverage was universal in theory, but benefit levels were rather low (Aidukaite 2009).

Today, both countries can be described as post-communist welfare states, although there are of course significant country-specific peculiarities regarding welfare state development after independence in 1991 (Cerami and Vanhuysse 2009). Both incorporate a mixture of elements taken from the liberal (characterized by low levels of social spending, high income inequality and low decommodification) and conservative-corporatist welfare regimes (characterized by moderate levels of social spending, moderate income

11 From 2000-2007 both countries experienced the fastest GDP growth in the EU. 12 From 1995 until 2007 Estonia experienced an annual GDP growth rate of 7,9 % on average compared to 7,5 % in Latvia. Both experienced a steep GDP decline in 2008 and 2009 although Latvia was hit harder (-18 % in 2009, compared to -14 % in Estonia). 13 Eurostat 2011 23 inequality and moderate decommodification) as well as some distinct features of the post-communist societies. These features include a high take-up rate of social security, but relatively low benefit levels and a low level of trust in state institutions.

In both Estonia and Latvia, the welfare state plays a vital role in protecting citizens from social risks; insurance-based schemes with universal coverage play major roles. Benefit levels, however, tend to be generally low and do not create enough incentives for people to declare their income for taxation, which constitutes a serious problem for the funding of the welfare state. The (shadow) economy and the family are still “important agents for guaranteeing an adequate standard of living for the population” (Aidukaite 2009: 101).

Health systems

Before the beginning of World War II, the health systems in Estonia and Latvia were based on a social health insurance system. The first sickness funds were established under Russian legislation in 1914 (Estonia) and 1920 (Latvia). By 1930, laws required mandatory health insurance for employees and the rest of the population in Latvia (WHO 2001a), while Estonia failed to create new health insurance legislation during the period 1918–1940. In the late 1920s, 18,0 % of Estonians were insured and in 1938, 18,2 % of the population in Latvia were covered by insurance.

Sickness Fund revenues consisted of contributions by employers and employees, plus allocations from the state. They covered emergency care, outpatient and inpatient treatment services and maternity care. In Latvia and Estonia funds owned hospitals and contracted physicians for services. Parallel with this, a network of private physicians and private hospitals existed. Additionally some municipal and state-owned facilities offered services for poor people and those with special needs (for mothers and children, TB patients and mentally ill patients). Both systems were highly decentralized and locally managed (European Observatory 2008).

24 During Soviet times, both health systems were organized according to the centralized, state-controlled and state-budget financed Semashko model, which focused mainly on secondary care services. Planning, financing and management were carried out by the centralized Soviet Ministry of Health in Moscow. The central health strategy focused on scientific research, specialization and the construction of huge health facilities. Private activities in health care became prohibited. Sickness Funds were abolished, health facilities were socialized and health professionals became public employees. Many health professionals left the countries at that time. The system covered the whole population, but access to facilities and the quality of care were generally poor. In addition, the focus on quantitative targets led to substantial overcapacity in the form of hospital beds and surgical specialties. Nonetheless, the system managed to increase immunization rates and improve disease control. As a result life expectancy increased.

In the early 1990s, both countries introduced major reforms in their health systems. They focused on decentralization and the development of a Primary Health Care (PHC) system, as well as improvement of health infrastructure. In this regard, Estonia was the first country to use EU structural funds in the pre- accession period, to invest in health care facilities (European Observatory 2008). Both countries attempted to diminish the role of the state and to replace it with market-driven incentives. In this regard, Estonia was more successful than Latvia. Since 2002, all health service providers have been operating under private law, even though most facilities are still in public ownership by the state or municipalities. This is not the case in Latvia, where most facilities are publicly owned, operated and supervised.

After independence the two states took very different paths regarding the financing of their health systems. While Estonia introduced a classic system of mandatory social health insurance contributions based on a sickness fund (Leppik 2003), Latvia decided for centralized tax funding of the national health system (a so called tax-funded “social insurance” system) - this despite all political parties were stating the objective of returning to a social health

25 insurance system, as was in place before the Soviet occupation (European Observatory 2008)14.

Estonia introduced a social health insurance system in 1991, operating through the Central Sickness Fund and 22 regional sickness funds. In 2001, the Estonian Health Insurance Fund (Haigekassa) replaced these funds and was transformed into an independent public body. It is now acting as an active purchasing agency, holds contracts with health care providers and is paying for health services and pharmaceutical expenditure. The system is mainly financed by health insurance contributions in the form of earmarked social payroll tax (13 % of wage), which amounts to 60 % of total health funding. The Ministry of Social Affairs is responsible for covering costs of ambulance care and emergency care for uninsured people, making the coverage of the health system universal.

In the early 1990s, the Latvian Ministry of Welfare tried to decentralize funding by establishing 35 state institutions called “sickness funds” at the local government level. These would redistribute health budget funds to health care providers. In 1997, these funds were re-merged into the “State Sickness Fund” (today known as SCHIA) which redistributes health budget on the basis of contractual arrangements with health care providers. However, it does not collect insurance premiums. Still today, the central government is responsible for financing the health system through tax revenue. The Ministry of Finance allocates tax funds to the SCHIA, a subordinate organization under the Ministry of Health’s control, which acts as a purchaser of health services on behalf of the population. Entitlement to health care services in Latvia is universal.

Current health expenditure per capita (PPP) in both countries is nearly comparable with 1226 $ in Estonia and 1112 $ (international $) in Latvia. This is one of the lowest spending levels within the EU15. Relative total health expenditure in Estonia has declined since 1995 as % of GDP and is currently at 5,9 %., whereas total health expenditure in Latvia has steadily risen and is actually at 6,5 % of GDP. This is both below the EU average at 9,01 % of GDP. Latvia is at EU12 average of 6,4 %, while Estonia is below this average. The

14 Large scale tax evasion in Latvia, as will be discussed under 3.2.2, has a detrimental effect on health system financing 15 EU average is 2877 $ and EU12 average expenditure 1195 $ (see Annex Figure 3) 26 health budget makes up for 4 % of total government expenditure in Estonia and 10 % in Latvia (WHO 2008).

The equity in access to the health system is limited in both systems by raising private expenditure on health care. In Estonia 76 % of total health expenditure are still public, while this is only 59,6 % in Latvia (EU12 average 72 %, EU average 77 %)16. Legal private expenditures makes up for 24 % in Estonia and 40,4 % of total health expenditure in Latvia (WHO 2008). This fact limits access equity and is aggravated by the prevalence of informal payments. Governments try to deal with this problem by exempting vulnerable groups from paying user charges for health services (European Observatory 2008). Private complementary insurance is available in both countries, but only makes up for 1,6 % (Estonia) and 2,6 % (Latvia) of private health expenditure (WHO 2008). Public perception about the quality of the health system in both countries is rather negative. 26 % of Estonians and 32 % of Latvians evaluate the current system for health care in their country as very bad, 49 % and 47 % ranked it as not so good; 24 % and 20 % thought it was fairly good, and only 1 % thought it was very good (Rose 2006).

Corruption in Estonia and Latvia

Corruption levels in Estonia and Latvia have declined significantly during the last 15 years. They have however been quite different since the very beginning of corruption perception measurements in the Baltic states in 1996 (World Bank) and 1998 (Transparency International). The methodology of both measurements has been criticized extensively (Knack 2006, Thomas 2009), but the datasets are still the best available and most comprehensive, for comparison between countries. The World Bank’s Indicator “control of corruption” and Transparency International’s Corruption perceptions index (CPI) show that Estonia was perceived to be “less corrupt” than Latvia already in 1996 respectively 1998 (Table 2).

16 See Annex Figure 5 and 6. 27 On a scale from 0 (highly corrupt) to 10 (very clean) in the CPI, Estonia was ranked with a score of 5.7 in 1998, compared to Latvia with a score of 2.7. The World Bank measuring “control of corruption” ranked Estonia at 55,8 % compared to Latvia at 27.7%, in 1996. While Latvia’s score on the CPI improved from 2.7 to 4.3 in the CPI score and from 27.7 to 59.9 % in the Control of Corruption indicator, Estonia improved from 5.7 to 6.5 in the CPI score and from 55,8 to 75,7 % in the Control of Corruption indicator. When asked if corruption is a major problem in their countries, still 82 % of Estonians and 86 % of Latvians agree (Eurobarometer 2009).

The outstanding types of corruption seem to differ in both countries. According to some interview partners, there are indications that Latvia is primarily faced with grand corruption, such as state capture17, while this does not seem to be the case in Estonia. Both states have big shadow economies and are confronted with large scale tax evasion.18 In Latvia especially, this has detrimental effects for health care financing, since the health system is financed through general taxes. People escaping the tax system still have access to public health care services, despite not contributing to the financing of the system.19 In Estonia, social health insurance contributions are mandatory and bound to the payment of earmarked social payroll tax. Therefore escaping the system is much more difficult.

Corruption in the health care sector

As discussed under 2.2.2 corruption in health systems can occur in manifold forms (see table 1). Grand corruption could occur - e.g. by political decisions to reform a health system in a way that favors a certain economic group, but does not benefit the whole population. Petty corruption often occurs in the form of informal payments, use of “official time” for private consultations, payment of

17 A Latvian official stated: “State capture and Kleptocracy on a policy planning and regulation level still create advantages for certain economic groups”; A TI Latvia representative stated:“Political decisions are often not taken in official power structures, they are rater private deals” 18 Estimations assume that unpaid income and social taxes constitute up to 38% of Estonian and 39 % of Latvian GDP (Aidukaite 2009). 19 A proposal of a Latvian MP, suggesting to condition coverage of the public health system to the payment of taxes, is emotionally discussed in Latvia at the moment. Pensioners, children and other groups would be exempted and still be covered. A Ministry of Health official is however skeptical about the implementation of the proposal: “In a emergency situation, how would you check if he/she has paid taxes?” 28 “phantom” workers and privatization of public supplies and services. Extensive research about the topic is lacking, critical data on country levels are often missing, and cross-country comparisons of corruption in the health care sector are rarely existent. Some corruption perception surveys are trying to shed some light on the matter.

Eurobarometer collects data on public perception -- i.e., whether people think the giving and taking of bribes and the abuse of positions of power for personal gain among workers in the public health care sector is widespread or not. While in 2007 only 20 % of Estonians thought it was, this figure rose to 31 % in 2009. In Latvia, however, there was a reduction from 60 % (2007) to 55 % (2009). At the same time, the percentage of people who were asked to pay a bribe for services in the public health care sector stayed the same in Estonia with a low 1 % (2007 and 2009) and fell in Latvia from 14 % (2007) to 8 % (2009).

Cockcroft et al. published an inter-country comparison of informal payments in the Baltic States in 2008 (conducted 2002), focusing on unofficial payments for health services that should by law be free. In Estonia, 43 % of respondents considered the level of corruption to be high within health services compared to 45 % in Latvia. Respondents speaking the national language were less likely to report corruption as high in both countries. Only about half of respondents considered unofficial payments to be corruption (Estonia 56 %, Latvia 51 %). Most of those who believed that unofficial payments are not corruption believed them to be an act of gratitude. Only about a third of respondents would be willing to report health care professionals who asked for unofficial payments (Estonia 44 %, Latvia 38 %). The percentage of respondents who said they actually made an unofficial payment during their last contact with the health service is low in both countries (Estonia 0,7 %, Latvia 3 %). While Estonian doctors and nurses considered the reported rate for Estonia as reflecting reality, Latvian doctors and nurses thought that the reported rate for Latvia was an underestimate. According to this survey, giving gifts is common in both countries: 14 % of respondents gave a gift (in kind: candy, flower, liquor, etc.) at their last contact with health services (Cockcroft et al. 2008: 5).

29 Government survey data from the Estonian Ministry of Justice (MoJ) show that 9 % of people have been asked for a bribe in 2010 by a physician compared to 14 % in 2006. The content of a bribe is often a return favor or an amount of money up to 1,000 Kroons. According to survey data from Transparency International Latvia, 13,6 % of respondents said that they have personally experienced a medical professional accepting informal payments or gifts in Latvia (2009). This figure has continuously fallen, from 22,8 % in 2005 to 20,9 % in 2007 and 13,6 % in 2009.20

Despite potential difficulties of definition, methodology and under- or over- reporting, the results show a similar pattern. Corruption in the health care sector exists in both countries and has decreased during the last years. The level of gift giving is similar in both countries (14 %); still, unofficial payments differ (Cockcroft et al. 2008: 12) and are more common in Latvia.

Corruption Scandals

In both countries, corruption in the health care sector has been a topic in the media. In Estonia, popular cases include the issuance of spurious medical certificates and procurement cases. In 2003, the head of the medical committee of the State Defence Department issued spurious medical certificates for bribes of 2500-3000 crowns, which were used as release from military service and in 2009, a surgeon issued spurious medical certificates to defendants at trial, in order to postpone hearings. Media reporting in 2009 revealed corruption in public procurement: two firms related to doctors working in the respective hospitals won all tenders for endoprosthesis over years and an oncologist sold drugs from his company valued at 130 million crowns to his employer. In 2010, the state secretary of the Ministry for Social Affairs urged the Haigekassa to sign an agreement with a private cancer clinic (related to his brother-in-law) and affirmed in advance his approval for the regulation.

20 A TI representative however noted, to handle the numbers with care, since they have not been compared to the number of people actually visiting medical care and due to the hard consequences of the financial crisis in Latvia, this number is likely to have declined, because people could not afford out-of-pocket payments anymore. 30 In Latvia, popular cases include procurement cases and informal payments, also accepted by high-level politicians. In 2009, a company won a contract for the construction of a children’s hospital and changed the contract in its favor afterwards, with help of the hospital director. In 2007, the Latvian president Valdis Zatlers, himself a surgeon, admitted that he as a physician had accepted so called “gratitudes”, i.e. gifts and informal payments. The former health minister Aris Auders also took money from patients for surgeries that were already paid for by the state. In 2010, a popular TV show, called “People’s Voice” aired a video showing a doctor actively asking for bribes (150 EUR) before a surgery. In 2011, the current Minister of Culture, Sarmīte Ēlerte - former editor of the newspaper Diena and at that time (2007) a strong critic of President Zatlers for accepting informal payments - admitted that she bribed a doctor, who was treating her son. She stated: “"I had no choice […], I was forced by the system. I can make a difference as citizen, but not as mother.”

Anticorruption legislation and initiatives

Legislation

Estonia introduced extensive anticorruption legislation very soon after it regained independence in 1991. In 1995, it adopted the Anticorruption Act (amended in 1999), which contains a clear definition of corruption (“the use of official position for self-serving purposes by an official who makes undue or unlawful decisions or performs such acts, or fails to make lawful decisions or perform such acts”). The act also names a broad list of public office holders, who might be held liable for corruption cases and requires public officials to declare their financial assets and adhere to restrictions on private sector employment. A new Anticorruption Act is currently pending for adoption in parliament. Furthermore, Estonians included the concept of corruption and possible sentences in the Penal Code as early as 1995 and thereby laid the foundation for the actual prosecution of corruption cases. In 2001, the new Penal Code was adopted, covering the concept of corruption in the form of

31 abuse of authority, accepting a bribe, arranging a bribe, giving a bribe, embezzlement and violation of requirements for public procurement. Estonia does not have a special law on conflict of interest, but addresses the issue in the Anticorruption Act.

Latvia introduced advanced anticorruption legislation also very early compared to other CEE countries (Open Society Institute 2002). The Latvian parliament approved a Corruption Prevention Act in 1995 (amended in 1998 and 2001), defining the concept of corruption as “the use of public office for unlawful purpose of obtaining material or other benefits” and identifying a list of public office holders, who might be held liable for corruption cases. It requires public officials to declare their financial assets and adhere to restrictions on private sector employment. The Latvian Criminal Law (1999) covers the concept of corruption by imposing sanctions for accepting, arranging and giving a bribe, abuse of power and unlawful participation in property transactions. The Latvian Law on Prevention of Conflict of Interest in Activities of Public Officials regulates the restrictions on entrepreneurial activities, combination of jobs, etc.

Estonia and Latvia have both ratified the Council of Europe’s Civil Law Convention on Corruption; the Council of Europe’s Criminal Law Convention on Corruption and the United Nations Convention against Corruption (UNCAC). Estonia has additionally ratified the OECD Anti-bribery Convention. They both take part in the Council of Europe's Agreement Establishing the Group of States Against Corruption (GRECO), the Baltic Anticorruption Initiative (BACI) and the Anticorruption Network hosted by the OECD. It can be concluded, that both states have in place extensive legislation for the prevention of corruption and the penalization of corrupt acts.

Initiatives and Strategies

In 2004, the Estonian parliament adopted the first national anticorruption strategy called “Honest State”, which aimed at reducing the risk of corruption. The strategy was replaced in 2008, by a more detailed anticorruption strategy, which addressed the health care sector in particular. The Estonian Ministry of Justice carries out a sociological survey every four years, asking ordinary people about their experience with corruption, perception of corruption and

32 ethical attitudes and builds its anticorruption priorities on the results of the survey. One issue that came up in the 2006 survey was that people perceived the health care sector as very corrupt. A Ministry official stated: “There were other issues stemming from the survey too, but this was the most outstanding issue”.

Latvia introduced its first Corruption Prevention Program in 1998, based on the objectives of prevention, prosecution, enforcement and education. It has been reviewed every 6 months (Open Society Institute 2002). Since 2004, the Corruption Prevention and Combating Bureau (KNAB) has prepared a National Strategy for Corruption Prevention and Combating and a National Program for implementation every four years. The current Strategy and Program is valid for the time period 2009-2013, but so far has not been translated into English language. The listed priorities in the strategy document include objectives of decreasing societal tolerance of corruption and increasing the public official’s awareness about legal requirements related to corruption prevention; they do not target the health care sector in particular, however. The KNAB should carry out a sociological survey about corruption perception every two to four years, but has not done so during the last four years. The reason for this is probably not a lack of funding, since 250.000 Lats of the budget 2009 and 2010 have not been used. A KNAB official said: “It was because of attitudes. Resources have been allocated, but KNAB decided not to use it. I can’t further comment on that.”

Anticorruption Initiatives for the health care sector

The Estonian MoJ formed working groups to develop specific measures for the target sectors in the anticorruption strategy, one dealing specifically with the prevention of corruption in the health care sector. The health care sector working group was led by a representative from the Estonian Health Board and included representatives from patient’s organizations (Estonian Patient Advocacy Association, Estonian Mental Health Organization), a physician’s association (Estonian Medical Association), the Estonian Nurses Association and Estonian Hospitals Association, and scholars from the University of Tartu. The former working group leader described the atmosphere during the working group as difficult in the beginning because “We are not always sitting at the

33 same side of the table. Frequently we are sitting at opposite sides of the tables and I remember that the first session [of the working group] was only fight. But the second meeting was already better, because we all started to trust”. The participants were involved in the mapping of risks within the health care sector and in preparing an action plan for the Ministry of Justice.

The group proposed three measures: 1. obtaining information about the scope of corruption in the health care sector; 2: increasing the awareness of corruption and ethics in the health care sector; 3. increasing transparency in the provision of services, which were incorporated in the anticorruption strategy. Activities included the creation of a corruption risk map in the health care sector, the establishment of an electronic waiting list system, ethical trainings for health care professionals and the establishment of a whistle-blowing system in the health care sector (see Annex Table 3). Most measures are currently under implementation.21

In Latvia in 2007 a working group - led by the Ministry of Health - was dealing with corruption in the health care sector and especially with the issue of informal payments. The working group formed at the request of the Latvian president Valdis Zatlers, who admitted that he as physician had accepted informal payments in the past as an expression of thankfulness by patients. After public pressure, he expressed that this “system of gratitudes” needed to be changed. The group started working and had the objective to come up with proposals on how to address the issue. The group included representatives from the state revenue service, a doctor’s association, a hospitals association and civil society (TI Latvia) and met several times, but according to TI Latvia the meetings just stopped after some sessions, without clear results and measures. The Ministry of Health representative said that the group discussed the issue, but she could not comment on concrete measures, since she has been working in the ministry less than a year. On December 9th 2009, the Latvian Criminal Code was amended and includes now the criminalization of the solicitation and acceptance of so-called “gratitudes”. While this could be attributed to the results of the working group, a KNAB official clearly attributed it to the Council of

21 The study about the thorough mapping of the corruption problems and risks in the health care sector is carried out by the University of Tarty in cooperation with the company Ernst & Young and will be published in August 2011. 34 Europe Group of States against Corruption (GRECO) pressure. The president himself stated in an interview in March 2011 that nothing has changed regarding the system of informal payments. He attributes this to the frequent change of health ministers. During his time in office (2007-2011), five health ministers have been replaced; the sixth is currently in office.

Applying Vian’s framework for assessing vulnerabilities to the health care sector

Vian (2008) identifies monopoly, discretion, accountability, citizen’s voice, transparency and enforcement as factors influencing opportunities for the abuse of power in the health care sector. He understands corruption in the health care sector as a combination of the opportunity to abuse and pressures to do so, mainly caused by incentive structures. Social norms, moral beliefs, individual attitudes and personality influence the readiness to accept corruption and constitute the basis for the individual justification of corrupt behavior. In chapter 3.3, the author is going to analyze how factors which can influence opportunities for corruption in both countries are distinct in Estonia and Latvia and how they are or have been addressed.

Monopoly

If health care providers have a monopoly, provider choice is impossible and possibilities for corruption may arise through increased power of providers and dependency of patients. Primary Health Care (PHC) in Estonia and Latvia is provided primarily by General Practitioners (GP) in the role of family doctors. Patients can freely choose the GP they register with and change the physician of their choice once a year. In Estonia, the GPs take over a “partial gatekeeper” function by referring patients and thereby controlling most access to specialized care; there are however exceptions for some disciplines (gynecologists, psychiatrists, etc). In Latvia, the GP acts as a “real gatekeeper” to secondary and tertiary care. A patient with a referral can freely choose secondary or

35 tertiary care providers in both countries, as long as the medical institution has a contract with the Haigekassa in Estonia or the SCHIA in Latvia (HiT 2008).

In theory, provider choice is thus possible in both countries. In practice however, this choice is restricted by long waiting lists for specialists, diagnostic services, or operations and a limited number of physicians. Although the number of 3.27 active physicians per 1.000 inhabitants in Estonia and 3.16 physicians in Latvia is close to EU average (3.17), the choice of physician is limited, especially in rural areas. The choice of hospital is further limited by the fact, that local providers often give priority to patients within their catchment area, so as to avoid losing them in the future.

The resulting dependency on the remaining physicians/providers has been named as a factor influencing corruption by all Latvian interviewees. A KNAB representative said: “Yes, patients have the possibility to report [corruption cases] anonymously to us and some do, but the problem is the small size of Latvia. If you have one specialist in a surgery field, you can just visit him. At the moment people are very resistant [to report].” A TI representative said: “Nobody is ready to report, because patients are so dependent on their doctor. They don’t have a real choice [of provider].” But also Estonians describe this dependency. A TI representative said: “Actually they [patients] can’t choose providers. There are long waiting lists for some treatments in the public system, but you are offered the alternative to get the treatment in some days, if you are willing to pay some extra money.”

Discretion and accountability

The fact that discretion of health care professionals is an inherent characteristic of health systems is uncontested. Only the respective physician or nurse has the competence to decide in an emergency situation which kind of treatment or drug is needed by a patient. Discretionary powers are hard to measure and hard to restrict. There are however different ways to at least limit discretion, by increasing accountability through legally binding measures, implementing surveillance mechanisms and increasing awareness about the issue.

36 Both states have criminalized the solicitation and acceptance of bribes by health care professionals. While this measure was introduced in Estonia in 2001, Latvia included it in the Penal Code in 2009. Patients can report cases to KNAB in Latvia and to the Police in Estonia. A whistle-blowing system in the health care sector has not been installed in either country so far. Internal accountability systems in provider institutions and professional associations are still limited. There are codes of ethics for physicians in both countries, but they do not include special references to corruption. Health care professionals in both countries are not public servants, so civil service codes of conduct do not take effect here. The KNAB in Latvia is however providing trainings for non-corrupt behavior in many public institutions, e.g. also in university hospitals.

Regarding the accountability of health care professionals towards the public, both countries introduced patient’s rights laws. While Estonia introduced the Law of Obligations Act in 2001, Latvia adopted its patient’s rights law in 2009. The Haigekassa in Estonia is quite active in raising awareness about the topic, while according to a Latvian journalist, there have been no awareness-raising campaigns about the issue in Latvia. Patient’s organizations exist in both countries and take part in consultations with ministries. They are however perceived as weak by government officials and journalists in both countries. In Latvia, a patient’s ombudsman has been installed, who acts as a mediator between patients and physicians, but does not assist in any other way, to represent the rights of patients.

Regarding the misuse of government funds, Estonia has introduced a duplicated and sophisticated system of auditing and surveillance. The sickness fund Haigekassa has an obligation and right to make audits of all its partners (health care providers). In addition, the Estonian Health Board has the right and obligation to control all health care service providers. More than that, county governors have the right and obligation to control all family physicians in his/her county. Haigekassa must be audited by an independent auditor annually. In addition, the State Audit Office has the right to audit the fund and any other governmental/local/municipal authority that may deal with the health budget. Surveillance and Auditing in Latvia is convened by two government authorities, the Health Inspectorate Latvia and the State Revenue Service. The Health 37 Inspectorate is a state administrative institution supervised by the Ministry of Health of the Republic of Latvia and is responsible for the auditing and control of health care expenditures of state budget funds, by auditing SCHIA, hospitals and family physicians. There are no independent audits in Latvia so far.

Citizen’s voice

Estonia has a relatively strong and active civil society, with a number of 30267 NGOs in 2009 compared to an estimated 5700 in 1991 (USAID 2009). Although this number has to be regarded with caution, since as a ministry official stated “I think half of those NGOs are apartment associations”, there are several NGOs engaged in anticorruption research projects, the main one being Transparency International Estonia. In 2002, the Estonian government introduced a Civil Society Development Concept (renewed in 2004 and 2006) to support and further develop NGO activities. The concept laid down principles of cooperation between the state and NGOs and lead to an active collaboration between Civil Society organizations in the preparation of anticorruption legislation and the development of anticorruption strategies.

The number of NGOs in Latvia has also been steadily growing since 1991 from a number of ca. 50 (Freedom House 2005) to a number of 11669 in 2009 (USAID 2009). The main NGO engaged in anticorruption research projects is Transparency International Latvia, called Delna. In Latvia, participation of civil society in rulemaking and legislative drafting is based on two formal mechanisms. One requires rules and legislation to be published on the Cabinet of Ministers’ website before they take actions on them, to ensure that NGOs can comment on them, the other requires ministries, which are proposing new rules or legislation, to document to which extent they have consulted with NGOs on the proposal (Russell-Einhorn et al. 2001). The National Development Plan 2007-2013, which is a medium-term planning document, sets out the goal of government “to ensure efficient participation of NGOs in decision making and legislation by increasing the activities of NGOs and their participation in discussions on draft laws”.

38 In Estonia, Civil Society Organizations were invited by the Ministry of Justice to take part in different working groups and give input while preparing the Anticorruption Strategy and Implementation Plan 2008-2012. In general, a Ministry of Justice official described the cooperation with Civil Society Organizations in Estonia regarding anticorruption matters as “cooperative and healthy”, but also stated that the mere “existence of NGOs does not guarantee anything”. The style of cooperation matters: “they have to be cooperative and we have to be cooperative”. Transparency Estonia stated that “civil society involvement in the elaboration of anticorruption initiatives could be higher”.

In Latvia, Civil Society Organizations have been invited as well to take part in the working group in 2007 that dealt with the issue of corruption in the Latvian health care sector. A Transparency Latvia representative stated about the process: “Yes, we have been invited. The group met several times, but then just stopped without further notice. The Ministry of Health is not ready to do anything.”

All interviewees saw Transparency International (TI) as the only strong NGO in Estonia that is working on anticorruption and transparency issues. A Ministry official said about the cooperation with TI Estonia regarding anticorruption initiatives: “They were in the shadow’s depth for a while, in the sense that we knew that they were existing, but they did not give too much input to the anticorruption policy. They have become much stronger within one year”. Regarding the style of cooperation a ministry official stated: “In Estonia, I don’t know, whether it is bad or good. I think that we do not have this antagonism [between NGOs and the state], which makes them really part of the process. It is not a game we are playing, i.e. they propose something and then goodbye, but it is rather this mutual cooperation, which is taking place in a very pragmatic way.”

Estonia and Latvia have a free press and a diversified media landscape. In the Freedom of the Press Rating (Freedom House), Estonia is rated as top performer of the region Central and Eastern Europe/Former Soviet Union, ranked 19th out of 196 countries compared to Latvia, which is ranked 55th. During the era of perestroika, media had an enormous audience and enjoyed a

39 great deal of trust in Estonia and Latvia. Newspaper privatization in Estonia took place very early (beginning of the 1990s), with the government agreeing that it should no longer be involved in newspaper publishing (European Journalism Center 2010). In both countries media has been reporting extensively about corruption cases in politics, administration and the health care sector. Diena, a Latvian language newspaper stands out in this regard.

Estonians and Latvians are very active media consumers. The number of regular Latvian newspaper readers (47 % in 2010) is relatively low compared to Estonia (74,3%), while radio consumption is the same (4 hours a day). In both countries, a high share of the population are internet users (Estonia, 66,2 % Latvia 60,4 %) (World Bank 2008).

Transparency

The access to information on legislation and government policy documents is extensive in Estonia. The right to access information from Estonian authorities is a constitutional right and in 2000 the government issued a law declaring internet access as a fundamental human right of its citizens. The Public Information Act (2000) indicates a broad list of institutions and individuals that have to provide information in response to legitimate requests from citizens and obliges institutions to disclose certain information (laws, strategy documents, orders, studies, budgets, etc.) on their websites and update it regularly. All laws are translated into English and published on a central website.22

The Latvian Law on Freedom and Information (1998) is to ensure that the public has access to all information (except restricted access information), which is at the disposal of every institution, as well as persons who implement administration functions and tasks. Since its amendment in 2005, state institutions are bound by law to publish laws and certain additional information on their web pages.

In Estonia, health budgets of the Estonian Social Insurance System (Haigekassa) and ambulance budget, as well as information on their

22 http://www.legaltext.ee/ 40 performances, are regularly published on their webpage (since 2001). In Latvia, health budgets are regularly published on the webpage of the Ministry of Health of the Republic of Latvia and on the webpage of other state administrative institutions, which are supervised by the Ministry of Health of the Republic of Latvia.

All public tenders in Estonia are, according to the Procurement Act (2007), available on the web site of the public procurement register. In addition, there is an obligation by law to publish all public contracts on the webpage of the governmental agency and the service providers’ webpage. Public tenders in Latvia are, according to the Public Procurement law, published on the webpage of the respective purchaser as soon as a decision is taken regarding the necessity to perform a procurement procedure.

The State Agency of Medicines Estonia is publishing information about all clinical trials since 2002 and periodically publishes an overview of reported adverse drug effects by physicians. Furthermore, an electronic waiting list system is accessible on the Haigekassa webpage, which contains reports about waiting list data from hospitals. The State Agency of Medicines Latvia is collecting information about all clinical trials and is responsible for the nationwide system for physicians, who have to report about adverse drug effects. The results, however, are not yet published online.

Enforcement

Estonia has - in contrast to many states in the region - not established an anticorruption agency, but is pursuing a multiagency approach (Velykis 2010: 18). All public servants, supervisors and auditors are checking for corrupt behavior or situations; the Estonian Ministry of Finance provides training for public servants in this regard. Latvia established an anticorruption agency, called Corruption Prevention and Combating Bureau (KNAB), in 2002. It has broad powers to investigate corruption cases and has advisory, executive, investigative, preventive and educational tasks (Rusu 2010). KNAB is under the direct supervision of the Prime Minister; its director is appointed and dismissed by the Parliament upon the recommendation of the Cabinet of Ministers. According to Eurobarometer, 26 % of Latvians and 42 % of Estonians think that 41 there are enough successful prosecutions in their country to deter people from giving or receiving bribes (2008).

In Estonia, anticorruption laws are enforced primarily by members of the security police (operating as an independent board within the Ministry of Internal Affairs) and regular police forces at the investigative stages and by the regular court system once cases go to trial (Freedom House 2002). Estonia’s judiciary is very independent compared to other countries worldwide; it is ranked 24 th out of 139 countries (Global Competitiveness Report 2010). Between 2003-2009 it has convicted several high level officials and judges accused of bribery and has imposed actual imprisonment from 2 to 3.5 years.

In Latvia, laws are enforced by KNAB in cooperation with the police and enforcement is handed over to the court, when cases go to trial. Latvia’s judiciary is less independent than Estonia’s and ranked 71th out of 139 countries (Global Competitiveness Report 2010). KNAB has especially in its first years of existence carried out a large number of investigations of high-level corruption. Judges, state secretaries and other senior officials were arrested and prosecuted on corruption charges. In 2008 however, the head of the KNAB was - after some earlier unsuccessful attempts - finally dismissed by the prime minister, despite strong civil society protest. After more than a year of struggle between parliament, prime minister and civil society a new director was appointed in March 2009. Regarding the amendment of the Penal Code in 2009, making “gratuities” illegal, there have so far been no convictions for this corrupt act in Latvia.

In 2002, there were discussions about the creation of an anticorruption agency in Estonia and experts convened a study trip to Latvia to study the KNAB. A Ministry of Justice official stated: “After this visit we realized that this is not our way. We rather purposefully choose the Scandinavian way, enforcing it [the law] in cooperation with different “softer” institutions”. Regarding the success of this decision the same person said: “It was the right decision for Estonia. We were not wasting money and energy on fighting about budgets and about power. I think that using those existing institutions is much better than creating a new anticorruption agency with special powers.”

42 Incentive structures

The Semashko System was characterized by excessive secondary care structures, which were owned by the state or local governments. Health care professionals were public employees and their salary levels were determined centrally. Both countries experienced severe emigration flows of qualified health personnel after independence, since wages were low and health care professionals lost their status as public employees. A large number of medical graduates (up to 40 % per year) decided to leave the clinical medical field in the early 1990s to work in better paid positions. Both countries then introduced country-wide agreements for minimum wages for health care professionals to counter-steer the trend. While they were introduced in Estonia already in 1999, Latvia introduced them in 2004.23

In Estonia and Latvia, the average monthly wage of doctors doubled within a period of 5-6 years. In Estonia from 654,79 EUR (2002) to 1293,67 EUR (2007) and in Latvia from 173,38 LAT24 (1999) to 442,08 LAT 25 (2005). Also the income of nurses and midwives increased considerably from 310,54 EUR (2002) to 586,48 (2007) in Estonia and from 132,58 LAT26 (1999) to 308,33 LAT27 (2005) in Latvia (OECD Data).

While there is still emigration of health personnel from Estonia to the West, the country is simultaneously experiencing immigration from the East. The trend of a declining health workforce could be nearly stopped. A Ministry official attributed this to the improvement of wages and working conditions through investment in good infrastructure by the use of EU structural funds. In Latvia, the emigration of qualified health personnel is still a serious concern. In light of the financial crisis and the subsequent health budget cut by 30 %, the economic pressure on the system is likely to rise and it will be a challenge to stop this trend.

23 “Regulations of the Cabinet of the Ministers on the Wages System for Medical and Social Work Personnel by Means of the State Budget” 24 Ca. 246 EUR 25 Ca. 628 EUR 26 Ca. 187 EUR 27 Ca. 438 EUR 43 In both countries, there is a widespread practice of physicians offering for a fee a treatment which is free in the public system but requires a wait. A TI Estonia representative stated: “This constitutes a great incentive for physicians to lengthen the regular queues as long as they can, so people get desperate and are willing to pay the money.” Estonia has in reaction introduced a central waiting list system, which requires hospitals to publish their waiting lists on the Haigekasse website. Patients can thus check upon waiting times.

Social norms

As discussed under 2.1.2, the non-universal, but particularistic character of social organization was considered a norm in the Soviet Union. This applied also to the health care sector, where corrupt practices such as informal payments, were considered an acceptable practice and were not punished by the legal system. There is evidence for a culture of “gift giving” in former Soviet Union countries (Ensor 2004). While it is difficult to compare corruption levels during Soviet times, because data are lacking, there are hints that corruption levels differed between different CEE countries (Radin 2009). Interview partners in both countries affirmed this assumption and said they believe corruption in the health care sector was more widespread in Latvia than in Estonia already during Soviet times. They attributed this fact mainly to differences in culture.

Estonians said: “We believe in rules”, “We are a part of Scandinavia, culturally and historically, this is part of the explanation” and “We were already at that time different, because were able to watch Finish TV programs already in the 1980s, so we consumed the Western way of thinking”. Latvians said: “It’s the way of thinking from Soviet times; you always bring presents to the doctor. It is some kind of tradition.”, “It’s about the way of thinking; we are closer to Russia, Estonians are more Scandinavian” and “We are on the right way, people’s attitudes are changing, but it takes time to change the way of thinking, people will need to get used to it”.

Mungiu-Pippidi states in her work that “Corruption can […] only be understood in conjunction with the stage of development of a particular state or society”.

44 She developed a figure illustrating the development of corruption in societies when experiencing transitions towards good governance. To simplify, she classifies regimes into three rough types: patrimonialism, competitive particularism and universalism.

According to her theory, societies in many developing and post-communist countries started transitions from situations (patrimonialism), where particularism represented the norm, referring to ”a mode of social organization characterized by the regular distribution of public goods on a nonuniversalistic basis”. During their transition towards liberal democracies (where universalism represents the norm), these societies undergo the stage of competitive particularism, where universalism as a norm has not yet gained a foothold. Estonia has obviously undergone this transition rather fast, in a time span of about 20 years - probably having started from a norm closer to universalism than other CEE states - and has reached the stage of a liberal democracy - where universalism is the norm. Latvia, however, is still on its good way towards this stage, currently in a stage where competitive particularism represents the norm. This mode of social organization is also mirrored in the welfare state development and respective health systems. Latvia’s welfare state and health system is more affected by a Soviet legacy than Estonia’s welfare state and health system.

Figure 2 Evolution of Corruption by Regime Type

45 Source: Mungiu-Pippidi, Alina: “Corruption: Diagnosis and Treatment”, in: Journal of Democracy, Vol.17, No.3, p.89.

“The closed society of doctors”

One issue that has been brought up by all interview partners in both countries and relates to the question of norms, is the standing of doctors in society and their special power and “closedness” as a professional group. Regarding their reputation and power, a Ministry of Health professional in Latvia said: ”Doctor is such a prestigious profession, in Latvia they are really respected persons, so it would be a real challenge to change the whole situation [about corruption]. If you have suspicions, there must be really strong evidence; otherwise you will have a lot of problems.”

In regard to the character of their professional association, a TI Estonia representative said: “It is a closed circle. Basically all Estonian doctors come from the same university; they constitute a closed society. Things are not reported, things are being covered and information doesn’t leak out.” A TI Latvia representative added: “It is a problem that the Minister of Health is a doctor, since he/she belongs to the closed system. They grew up in a system, where it was normal to bribe. They are not able to see the whole system, but concentrate on doctors“.

A KNAB official stated: “The reason for corruption is an ethical attitude. As far as I studied this problem, since 1998, I think that even the education system in Latvia is not promoting ethical behavior from doctors”. She talked about a seminar in a university clinic, where KNAB officials provided training about corruption prevention: “I have to say that I have never seen […] such cynical audience. These were the highest professors in our country. They said, you are stupid with your criminal law. Why have you implemented these international standards [the criminalization of informal payments]?”

46 Part 4: Preliminary results, Policy Recommendations and Conclusion

Part 4 will provide a summary of preliminary results of the case study (Chapter 4.1) convened in Part 3 and develop general policy recommendations for post- soviet transition economies based on these results (Chapter 4.2). Concluding remarks will complete this paper (Chapter 4.3).

Preliminary results

Overall it can be stated, that both states managed to improve health outcomes and diminish corruption levels, although Estonia is performing better than Latvia in all observed indicators. It is however likely that Estonia had already started its transition from lower levels of corruption than Latvia.

Both states experienced similar welfare state development after independence, but the financing mechanism and performance of the health systems differ. While Estonia has introduced mandatory social health insurance, Latvia has a centrally tax-funded health system. Massive tax evasion may be one of the reasons for an underfunding of the system, eventually also leading to corruption.

Although per capita health expenditure is comparable, health system performance and health outcomes differ between both states, Estonia is again performing better than Latvia. This may hint at a less effective health system in Latvia; it may also be associated with a less healthy lifestyle of Latvians. Further research is needed to comment on this issue.

Both states introduced extensive anticorruption legislation and initiatives very early after independence from the Soviet Union, but have only recently (2007 and 2008) started to target corruption in the health care sector in particular. A success in the reduction of corruption levels in the health care sector can not only be attributed to these sectoral initiatives. First measures are currently under implementation in Estonia and there is good reason to believe that these 47 measures will help to further reduce corruption levels. In Latvia, political will to address the issue seems to be limited at present.

When looking at the different factors influencing possibilities for corruption in Vian’s theoretical framework (2008), it can be stated that most factors have been addressed by the governments in a way that limits corruption. As observations, the following can be noted:

1. Monopoly: Provider choice has been made possible in both countries, which limits possibilities for corruption. Real choice is however restricted by long waiting lists for specialists, diagnostic services or operations and a limited number of physicians.

2. Discretion and Accountability: Both states have made attempts to limit discretion and enhance accountability of health care professionals and providers by criminalizing the solicitation and acceptance of bribes, introducing patients’ rights legislation and improving (independent and transparent) auditing procedures. In Latvia, there is however so far no independent audit procedure. A whistle-blowing system in the health care sector has so far not been installed in either country and internal accountability systems in provider institutions and professional associations are rather limited.

3. Citizen’s Voice: Civil society has become a lot more active in the last 20 years in both countries and governments try to increase civil society participation in rule making and legislative drafting. Civil Society Organizations express the will to expand this involvement further. Both countries have very active Transparency International chapters. Media is free and active in both countries, extensively reporting about corruption.

4. Transparency: Estonia and Latvia grant extensive access to legislative and policy documents online. Governments are bound by law to publish public procurement tenders and health budgets. Estonia additionally publishes a database on clinical trials and adverse drug effects as well as waiting times in hospitals.

48 5. Enforcement: Estonia and Latvia use different approaches regarding the enforcement of anticorruption legislation. Estonia is applying a multiagency approach, requiring all public servants, supervisors and auditors to check for corrupt behavior or situations. Security police and regular police forces are investigating claims, handing over cases to court when applicable. Latvia established a central anticorruption agency, the Corruption Prevention and Combating Bureau (KNAB), which investigates claims together with police forces and hands over cases to court when applicable.

6. Incentives: Wages of physicians and nurses have been considerably raised in the last 5-6 years and governments have tried to improve working conditions through investments in infrastructure (with help of EU structural funds). In both countries, however the incentive still exists for physicians to lengthen regular queues so that people turn to private practice for treatment.

7. Social Norms: While Estonia has obviously undergone rather fast the transition from a society where particularism was the norm, to a society where universalism is the norm, Latvia is still on its good way towards this stage, currently located in a stage where competitive particularism represents the norm. The reasons for this fast transition in Estonia may lay in the historical relatedness to Scandinavia and Scandinavian values, but this theory is under-researched and not scientifically proven. The closeness and “closedness” of physicians as a professional group, as well as their prominent standing in society, is in both countries seen as a factor hindering the fight against corruption.

All these factors certainly influence the existence of possibilities for the abuse of power in health systems, not implying that they are the only factors determining the extent of corruption within a country. Tackling corruption in the health care sector generally needs to be coupled with “broader governance reforms, including public finance, public administration and external oversight reforms” (Hussmann 2011). This paper does not claim a simple relationship, but

49 assumes that addressing the above-named factors will have positive effects on limiting corruption in health systems.

Policy recommendations

Success in tackling corruption in the health care sector obviously depends on a lot of factors and the combination of such. The scope of this explorative study is limited and further research is certainly needed to validate the findings of this paper. Nonetheless, this paper can contribute to an intensified discussion of the topic by highlighting different factors influencing the existence of possibilities for corruption and demonstrating ways to address these factors. Mungiu-Pippidi states in her work, that “Corruption can […] only be understood in conjunction with the stage of development of a particular state or society” (2006: 87). Policy measures in the fight against corruption have to be tailored to the specific situation and needs of the respective country. Systematic analysis of vulnerabilities to corruption is necessary to identify problems and select priorities in a specific country. There are, however, some lessons that can be learned from Estonia’s and Latvia’s efforts and success in tackling corruption. These general policy recommendations could assist other transition economies in preventing and fighting corruption:

1. Implement a comprehensive anticorruption legislation and include the concept of corruption in the Penal Code. Criminalizing both the bestowing, solicitation and acceptance of bribes and violation of procurement guidelines can lay the foundation for prosecution of corruption cases.

2. Develop an anticorruption strategy for the health care sector by mapping the risks for corruption in the health care sector and increasing transparency and accountability mechanisms, thereby raising awareness about the issue and enforcing control.

3. Enable provider choice for patients within health systems, thereby empowering patients to act and limit dependability on certain health care providers. Patients have the option to change and report providers.

50 4. Enhance accountability and limit discretion in different ways: Introduce patients’ rights legislation and raise awareness about their rights, thereby enabling them to call for their rights. Encourage health professionals and providers to establish codes of conduct that address corruption, thereby fostering ethical behavior and increasing internal accountability. Establish a whistle-blowing system to enable insiders to report. Enhance independent and transparent auditing procedures to improve control.

5. Support the creation and development of Civil Society Organizations and involve them formally in the preparation of anticorruption legislation, thereby ensuring accountability towards the public. Legally guarantee freedom of opinion and expression, thereby promoting freedom of the press and also supporting reporting about corruption cases.

6. Increase transparency in the health system by publishing information on health budget, health costs, waiting times, clinical trials and adverse drug effects online and enhance citizen’s access to these publications to increase citizens’ awareness about the topic and enable them to act as “watchdogs”.

7. Make sure, that responsibility for the investigation of corruption cases is clearly defined and that sufficient resources are allocated to the responsible institution(s). Inform people about anticorruption initiatives and make sure they know, to whom they can report in cases of corruption. Ensure the appointment of judges to be independent from political interference.

8. Incentive structures for health professionals need to be designed in a way that makes emigration less tempting and invalidates the often-used argument of “corruption as a required wage supplement”. Of course this depends a lot on the availability of resources for the health care sector, but governments need to ensure decent wages and improve working conditions to reduce corruption. In this regard it seems adequate for many transition economies to rethink their budget allocations and direct more funds (and foreign assistance) to their health care sector.

51 9. Increase awareness about the topic and provide anticorruption trainings for health care professionals, to get them on board as advocates for anticorruption strategies.

Concluding remarks

Any strategy to tackle the issue of corruption needs to be designed according to the specific context, and its effectiveness will always depend a lot on a country’s culture and institutional capacities. Learning from experiences in other countries may however improve chances for success. This paper has so far tried to compare two post-soviet countries that have managed to reduce corruption levels. By means of a case study, the paper looked at their welfare state and health system development, analyzed the situation of corruption in their health systems, and discussed different factors that are likely to influence possibilities for corruption in health systems as well as the way those countries addressed the respective factors. On the basis of this analysis, the paper gives policy recommendations that could help transition economies tackle corruption in the health care sector. In conclusion, it can be stated that the findings of this paper support the theory that corruption in the health care sector is less likely in societies where there is rule of law, transparency and trust in institutions, an active civil society and strong accountability mechanisms. Governments can generally help to improve the situation by introducing preventive measures such as procurement guidelines and codes of conduct for operators in the health care sector, by criminalizing corruption and enforcing penalties for corrupt behavior, and by improving transparency and monitoring procedures. The measures proposed in chapter 4.2 can certainly not replace the development of health systems which fulfill the needs of a population and a transition of particularistic societies to societies where universalism is the norm, but it can certainly support and accelerate this transition.

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In Estonia: In Latvia: Ministry of Justice Representative Corruption Prevention and Combating

XIV Bureau (KNAB) Representative Health Care Board Representative Ministry of Health Representative Transparency International Transparency International (Delna) Representative Representative University of Tartu Representative Journalist from newspaper Diena

XV Annex

Figure 3 Health expenditure per capita in the European Union, 1995 and 2008

XV Source: WHO Health for All Database (2011)

XVI Figure 4 Health expenditure per capita in CEE and CIS, 2003 and 2007

Source: World Databank (2011)

XVII Figure 5 Public health expenditure in the European Union, 2003 and 2007

Source: World Databank (2011)

XVIII Figure 6 Public health expenditure in CEE and CIS, 2003 and 2007

Source: World Databank (2011)

XIX Figure 7 Infant mortality rate in the European Union, 1990, 1995 and 2008

Source: WHO Health for All Database (2011)

XX Figure 8 Infant mortality rate in CEE and CIS, 1990, 1995 and 2008

Source: World Databank (2011)

XXI Figure 9 Maternal mortality ratio in the European Union, 1995 and 2008

Source: World Databank (2011)

XXII Figure 10 Maternal mortality ratio in CEE and CIS, 1995 and 2008

Source: World Databank (2011

XXIII Table 2 Estonia’s and Latvia’s performance in the Corruption Perception Index and in the Control of Corruption Indicator

Corruption Perception Index (Score): The CPI measures the perceived levels of public sector corruption in a given country. The index scores countries on a scale from 0 (highly corrupt) to 10 (very clean). Cou 19 19 19 19 20 20 20 20 20 20 20 20 20 20 ntry 96 97 98 99 00 01 02 03 04 05 06 07 08 09 Estoni - - 5.7 5.7 5.7 5.6 5.6 5.5 5.5 6.4 6.7 6.5 6.6 6.6 a Latvia - - 2.7 3.4 3.4 3.4 3.7 3.8 4 4.2 4.7 4.8 5 4.5 Control of Corruption Indicator (Percentile Ranks): The Control of Corruption Indicator measures perceptions of the extent to which public power is exercised for private gain. The Indicator ranges from 0 (lowest score) to 100 (highest score). Cou 19 19 19 19 20 20 20 20 20 20 20 20 20 20 ntry 96 97 98 99 00 01 02 03 04 05 06 07 08 09 Estoni 55.8 67.5 74.3 75.7 80.1 83 81.1 80.6 81.2 79.2 55.8 67.5 74.3 75.7 a Latvia 27.7 61.7 58.7 59.7 63.6 62.6 67.5 68 68.1 64.7 27.7 61.7 58.7 59.7 Sources: Transparency International and the World Bank (2011)

Table 3 Excerpt from the Estonian Implementation Plan for the Anticorruption Strategy 2008-2013

Objective Prevention of Corruption in the Health IV Sector Impact An overview of the scope of corruption in the health care sector, which helps to plan further steps to prevent corruption. As the awareness of health care providers and recipients increases, the number of corruption cases declines. Greater transparency reduces the risk of corruption. Measure Obtaining information about the scope of corruption in the health care sector Activity Indicator Addition Term Bodies s al responsible Expendit for ure implementation 10.1. The survey 300,000 2009 Ministry of Social Thorough has been Affairs mapping of carried out the corruption and the areas Ministry of Justice problem in the most health care susceptible to sector and corruption

61 updating of have been the Anti- mapped. Corruption Strategy Supplementa (drafting a ry measures separate have been Action plan if added to the necessary), Anti- considering Corruption also the Strategy experiences of the international network combating fraud in the health care sector (NHS) Measure Increasing the awareness of corruption and ethics in the health care sector Activity Indicator Addition Term Bodies s al responsible Expendit for ure implementation 11.1 Training has 200,000 2010 Ministry of Social Conducting been Affairs ethics training conducted courses for health care providers 11.2 The 300,000 2011 Ministry of Social Development guidelines Affairs of guidelines have been for prevention developed of conflicts of and interests introduced to specific to the health care health care specialists sector and and patients organization (informative of information materials). dissemination in the health care sector The Estonian Code of Medical Ethics has been amended (if necessary) 11.3 Training Training has 100,000 2011 Ministry of Social xxv supervisory been Affairs officials in the conducted sphere of ascertaining corrupt practices 11.4 The 100,000 2011 Ministry of Social Development notification Affairs of the system has been of reporting developed corruption and is cases in the operational health care sector

Measure Increasing transparency in the provision of services Activity Indicator Addition Term Bodies s al responsible Expendit for ure implementation 12.1 The Operating 2009 Ministry of Social Amendment regulation Expenses of Affairs of the has been the Ministry Regulation amended and of Social No.85 of the it establishes Affairs Ministry of explicitly the Social Affairs cases when dated 22 June absence from 2004 so as to a procedural prevent fraud act is in the issue of permissible certificates 12.2 Digital 2,000,000 2012 Ministry of Social Introduction of procedural Affairs digital medical records are records and used development of solutions for health care information system (SMS messages, digital reminders of appointments) 12.3 Creation The 900,000 2011 Ministry of Social of an electronic Affairs electronic waiting list

xxvi waiting list system has system been created and health care institutions and family physicians have joined the system.

Opportunities of cross- usage between the databases of the Health Care Board, the Health Insurance Fund and the Tax and Customs Board have been created. Source: Implementation Plan for the Anti-Corruption Strategy 2008-2012, http://www.korruptsioon.ee/orb.aw/class=file/action=preview/id=35714/Implementation+Plan+for +the+Anti-Corruption+Strategy+2008-2012.pdf

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