ADVOCATE AND BASIS FOR FORMULATION OF THE DECREE

1. REPORT ON A NUMBER OF MAIN CONTENTS AND PLAN FOR IMPLEMENTATION OF THE GOVERNMENT DECREE NO. 85/2012/ND-CP Dept. of Planning and Finance (DPF)

2. ADVOCATE AND BASIS FOR FORMULATION OF THE DECREE 1. Advocate, legal basis: - Conclusion No. 42-KL/TW dated 01 April 2009 of Ministry of Industry and Trade (MOIT) - Notification No. 37-TB/TW dated 26 May 2011 of MOIT - Resolution 18/2008/QH12, Law on Medical Examination & Treatment, Law on Health Insurance - Decision No. 402/QD-TTg dated 27 March 2009 of the Gov. Prime Minister; - Government Resolution No. 40/NQ-CP dated 9 August 2012

3. ADVOCATE, LEGAL BASIS, PRACTICE All the documents mentioned: 1. The State continues to strengthen investment for health, encourages economic actors/sectors to invest and develop public services. 2. Renovate operational mechanisms in a way that will increase autonomy, self-accountability for public non-business units in accordance with appropriate roadmap and steps 3. Exercise financial autonomy, implement with a roadmap the abolition of subsidy via service prices, gradually calculate/compute adequate costs and salary rates in prices to generate sources for reformation of salaries, a roadmap for adjustments to be consistent with affordability of people, 4. Coupled with renovation of mechanisms, the State continues to support social policy beneficiaries, and the poor groups that use public services, including health. 5. Renew the method of budget allocation; shift from supporting hospitals to support rendered to beneficiaries via HI. Restructure budget allocation,

4. ADVOCATE, LEGAL BASIS, PRACTICE 2. Practical basis • Through the implementation of Decree 10 and 43: it’s necessary to formulate and issue the mechanism to directly impact health workers; fully promote capacity and efficiency of health facilities • Medical techniques develop, demands for increased expenditure, resources are limited: it’s necessary to restructure, change the method of budget allocation, clearly identify which areas are guaranteed by the State so that those areas should be fully guaranteed, which areas are highly likely to be socialized so that expenses should be collected in accordance with the principle that expenses will be fully computed. Budget should be reserved for the subjects that need guarantee from the State. • Law on Medical Examination and Treatment identifies “health services”, according to price mechanism, • Policies on salary and income still have a lot of shortcomings:prices have not included salary structure but 35% has to be employed to implement the mechanism to generate sources for salary reforms. • Various units that have only changed prices have been able to ensure operational budget.

5. A number of main contents ofDecree 85/2012/ND-CP on operational mechanism and financial mechanism The Decree comprises 6 chapters and 27 articles 1. Chapter I: General regulations 2. Chapter II: Regulations on operational mechanism 3. Chapter III: Regulations on financial mechanism, including investment expenditure mechanism and regular expenditure mechanism 4. Chapter IV: Regulations on prices of medical examination and treatment services 5. Chapter V: A number of other regulations 6. Chapter VI: Implementation

6. A number of main contents of Decree 85/2012/ND-CP on operational mechanism and financial mechanism I. Regarding renovation of operational mechanism 1.Categorization: 4 groups based on the level of ensuring operational funds from revenues, specifically: - Group 1: self-guarantee of all regular operational funds and investment. - Group 2: self-guarantee of all regular operational funds. - Group 3: self-guarantee of a part of the regular operational funds. - Group 4: the units whose regular operational funds are guaranteed by the state budget. • Stable categorization during 03 years, in line with inter-ministerial criteria. Each group has its own/separate operational and financial mechanism. • As compared with the present: group 1 is added. This group includes the units with high conditions for socialization, which are autonomous in terms of organization, labour, are in a position to decide service prices within the price frame prescribed by inter-ministries. For piloting, there’s the Management Council to decide on important issues in operations of hospitals.

7. A number of main contents of Decree 85/2012/ND-CP on operational mechanism and financial mechanism 2. Provide for the units to have Organizational and Operational Regulations approved by the host agency. Explicitly specify functions and tasks of the units (in order to operate in conformity with functions, tasks, ensuring the consistency/comprehensiveness of the health system in line with the planning for development of sector, localities). • Stipulate that the units must develop annual specialized workplan, clearly defining the workplan under the assigned functions and tasks (to serve as the basis for budget allocation, placing order…), the “service” activities to meet social needs, the expenses of these activities will be collected as per the prices that include the full costs. • Conduct the handover of assets to eligible units under regulations of the Law on State Asset Management so that the units can preserve and develop the assigned assets. • With regard to the recruitment of public employees: assign the unit to take the initiative in formulating recruitment plan based on the document providing guidance on structure and quantity of public employees issued by a competent agency; functions, tasks, workplan, salary fund, actual situation and report to the management agency of higher level on the annual recruitment plan, in which the necessary quantity for each affiliated organization should be stated clearly, as well as requirements of quality, structure and time of using.

8. A number of main contents of Decree 85/2012/ND-CP on operational mechanism and financial mechanism II. Financial mechanism for investment and development expenditure: • The units under Group 1, the investment capital is sourced from: - Credit investment capital of Vietnam Development Bank (VDB), - capital borrowed from credit institutions under legislative regulations, - ODA capital (if any), - Capital mobilized from organizations and individuals under legislative regulations, but the units are only permitted to mobilize the capital to invest in the projects that have been approved by competent levels under the mode of paying interest rate with the maximum agreed interest rate, which is not in excess of 150% of the basic interest rate released by the SBV at the time of borrowing (this can remedy the contribution of capital for sharing interests) - Fund for development of non-business activities, - Other sources of capital under legislative regulations.

9. A number of main contents of Decree 85/2012/ND-CP on operational mechanism and financial mechanism 2. Units under Groups 2, 3 and 4: - Basically, SBV guarantees investment capital for infrastructure, equipment so that the units have necessary conditions for performing specialized tasks under the scope and functions of the assigned units. - MOH stipulates standards on infrastructure, list, minimum quantity of equipment for various types of units to be in line with the scope and health specialized field to serve as the basis for investment - Sources of investment capital are from: +Capital for concentrated investment and development, + Government bond capital, + ODA capital…under decisions of competent levels, + Fund for development of non-business activities of the units +Other sources of capital as prescribed by the law. * Capital will be borrowed in cases where prompt completion is needed for being brought into operation

10. A number of main contents of Decree 85/2012/ND-CP on operational mechanism and financial mechanism III. Financial mechanism for regular expenditure: • Units under Group 1, Group 2: Fund for regular operations is self-guaranteed by the unit from non-business revenues and service activities. 2. Units that function in preventive health, CHS: ensure regular expenditure from the state budget to carry out the tasks assigned by the state, including: - Basic salary. - Costs for operation and guarantee of regular activities, monitoring, examining, preventing and controlling epidemics on a regular basis within the assigned site: this amount of funding will be calculated and granted according to each assigned task (assignment of tasks-allocation of funds), or the funding can be distributed in accordance with the quantity of public employees, as per population criteria on the site in charge by the unit, with natural conditions and phenomena of epidemics taken into account. * The norms for allocation will be issued by Ministers, heads of ministerial-level agencies for the units under central control, by People’s Committees at provincial levels for the units under the localities. 3. The units providing medical examination and treatment as well as raising leprosy and mental patients, specific specialized health non-business units such as: food safety, population/family planning, experiments, verification, forensic/medical appraisal, justice…: the budget to ensure operational funds for the duties assigned by the state via the mechanism of ordering, task assignment/or calculation according to outputs.

11. A number of main contents of Decree 85/2012/ND-CP on operational mechanism and financial mechanism 4.Medical examination and treatment facilities (excluding Leprosy and mental hospitals), under group 3, group 4. The budget is ensured in accordance with the following roadmap: a) From 2013-2018: - The costs for maintaining, repairing houses, infrastructure have not been included in the prices for medical examination and treatment services. - Costs for salary, allowances, amounts of contribution (basic salary fund) follow the roadmap: + In 2013: Continue to implement the same as 2012 + In 2014-2015: 70% of Salary Fund for provincial-level hospitals in mountainous areas, the Central Highlands and district hospitals under Hanoi and HCMC, 50% for central hospitals and hospitals of the remaining provinces and cities; +In 2016-2017: Only guarantee 50% of the Basic Salary Fund for the hospitals of district level; b) As from 2018 onwards: the Budget will not guarantee salaries for these hospitals but calculate all salaries in service prices.

12. A number of main contents of Decree 85/2012/ND-CP on operational mechanism and financial mechanism 4. With regard to prices of medical examination and treatment services (i)In 2013: service prices will be calculated based on the following direct costs: - Medicine, chemicals, consumables, alternative materials for provision of services (including maintenance and depreciation costs in accordance with the norms stipulated by competent agencies), - Electricity, water, fuel, waste treatment, direct environmental sanitation to implement services; - Preservation and maintenance of equipment, purchase new tools and instruments for direct use in provision of services. - Payment of allowances of reception, allowances for operation/surgeries, procedures (if it is favourable, adjustments are expected to be made for the last 6 months of the year).

13. A number of main contents of Decree 85/2012/ND-CP on operational mechanism and financial mechanism 4. Concerning prices of medical examination and treatment (ii) Period 2014-2017: calculated on grounds of the following expenses: - The same expenses as in 2013; - Expenses on salaries: will be incorporated in prices + In 2014-2015: only calculate 30% of the Salary Fund for provincial-level hospitals in mountainous areas, the Central Highlands and district hospitals under Hanoi and HCMC, 50% of the Salary Fund for central hospitals and hospitals of the remaining provinces and cities; + In 2016-2017: calculate 100% of the Salary Fund for hospital of provincial and central levels and district hospitals under Hanoi and HCMC, 50% of the Salary Fund for the remaining district-level hospitals; - Costs for hiring outside workforce (if any). The maximum particular costs will not exceed 50% of salary costs of the services to pay allowance with a view to encouraging and attracting good experts and doctors, - Depreciation of fixed assets that are directly used to perform the services. - Indirect costs, other legitimate costs to operate and ensure normal activities of hospitals. (iii) Period from 2018 onwards, the prices of medical examination and treatment services will include adequate costs for implementing the services.

14. A number of main contents of Decree 85/2012/ND-CP on operational mechanism and financial mechanism IV.Power to stipulate prices of public medical examination & treatment facilities: - MOH and MOF stipulate the price frame for medical examination and treatment services in cases of payment by service; price frame of each type of disease, group of diseases in cases of paying according to each specific disease comprises 2 price frames: the Price frame calculated according to 2013-2018 roadmap and the Price frame that calculate/include all cost elements and is accumulated. - MOH defines prices for the hospitals under MOH management (or applies prices of hospital of the same category at localities), provincial People’s Committees define prices for the hospital under local management. - The rate of adjusting health service prices and the time of adjusting health service prices shall be appropriately decided by competent state agencies. In particular cases of the units under Group 1, Group 2, the socialization exercising institutions of public health non-business units shall be eligible for deciding prices within the scope of price frame with full calculation of cost elements issued by inter-ministries.

15. A number of main contents of Decree 85/2012/ND-CP on operational mechanism and financial mechanism VI. With regard to the use of sources of fund 1. In a position to take the initiative in using financial resources to pay for regular activities in accordance with functions and tasks of the units; paying for the collection of fees and charges; paying for the implementation of service activities as stipulated: a)Depreciation of fixed assets is calculated/fed into the Fund for development of non-business activities to use for investment. Depreciation of fixed assets from borrowed and mobilized sources of capital are used to pay the original loan, interests of the borrowed loan. b)The norms for paying management and operational costs have been stipulated by state agencies: the unit is in a position to decide some expenses which are higher or lower than the norms of expenditure specified in the unit’s Regulations on Internal expenditures, but this must be appropriate to their financial capacity. Exceptions are cars, working house, telephone, DSA for travelling abroad... c)The norms of expenditure for costs of management, costs of specialized activities have not been stipulated: the Head of an unit shall base on actual situation, on technical specialization process to appropriately formulate and issue economic-technical norms and norms of expenditure.

16. A number of main contents of Decree 85/2012/ND-CP on operational mechanism and financial mechanism VI.With regard to the use of fund resources d) Based on financial capacity and reality, the Head of an unit shall be in a position to decide to use a part of the fund for regular expenditure, fund for development of non-business activities to provide trainings to raise occupational and professional skills of staff, civil servants and public employees, to pay for the purchase of equipment, infrastructure renovationto strengthen capacity for provision of services and raise quality of services. đ) Based on nature of the work, the Head of an unit shall be eligible for decising the method of distributing package expenses for each affiliated section or unit for cost-saving and efficiency.

17. A number of main contents of Decree 85/2012/ND-CP on operational mechanism and financial mechanism With regard to the use of fund resources 2. If revenue is bigger than expenditure, that difference (if any) will be used as follows: a) For the units under groups 1 and 2: - Extract at least 25% to establish the Fund for development of non-business activities; - Extract to establish the Fund for increased income and protection of stable income. - Extract to establish the Fund for Commendation and Rewards, Welfare Fund. - Extract to establish the Fund for Supporting Medical Examination & Treatment for the units in charge of medical examination & treatment.

18. A number of main contents of Decree 85/2012/ND-CP on operational mechanism and financial mechanism b) With regard to the units under group 3, group 4: -Extract at least 25% to establish the Fund for development of non-business activities. If revenue is bigger than expenditure and the difference is less than 01 time of the salary fund, extract at least 15%. - Extract the Fund for increased income to pay for increased salaries, pay for excellent experts and doctors. The total maximum rate of income during the year of the units under group 3 shall not exceed 03 times of the salary fund by levels, titles stipulated by the State; of the units under group 4 shall not exceed 02 times of the salary fund by levels, titles stipulated by the State. - Extract to establish the Fund for protection of stable income. -Extract to establish the Fund for Commendation and Rewards, Welfare Fund with the maximum rate that shall not exceed 03 months of salary and the average additional income achieved during the year. - Extract to establish the Fund for Supporting Medical Examination & Treatment for the units in charge of medical examination & treatment.

19. Plan for implementation of the Decree

20. Plan for implementation of the Decree

21. Plan for implementation of the Decree