agenda

2. agenda Reforms in the Health System in Low-Middle Income Countries August, 2013 a practical experience in Georgia 2

3. Agenda • Background - • The Semashko model - achievements and collapse • Post Soviet era situation • Handling the crisis - The Georgian experience • From state to private service • Four reforms in 10 years • Challenges • Final remarks

4. Background - Who contributed to the Soviet Union collapse? Perestroika & Glasnost Strategic Defense Initiative (Star Wars) Clark Kent Nikolai Aleksandrovich Semashko  (9/1874 – 5/1949)

5. The Semashko Model Life expectancy in 1965 Very significant achievements life expectancy (both sexes) • The USSR made massive strides in reducing the spread of infectious diseases • Drastic reduction in epidemic diseases, particularly in the cases of TB, typhoid fever, typhus, malaria and cholera • Main characteristics of the system: • Full government responsibility for health, highly centralized control and policy making (Moscow) • All health care personnel became employees of the centralized state, which paid salaries and provided supplies to all medical institutions • The main policy orientation throughout this period was to increase numbers of hospital bedsand medical personnel

6. The collapse and post Soviet era situation The Semashko model became unsustainable: • Economically • Efficiency wise • Quality of service: • Equipment , technology and know how • Corruption • Lack of responsiveness and adaptability to local needs Common characteristics (from Sofia to Almaty) • Underfunded • Over dimensioned • Corrupted • Inefficient The status of the Semashko model at the end of the soviet era: Falling apart

7. Georgia • Georgia is one of the poorest countries of the former Soviet Union region • According to official statistics, approx. 30% of the population lives below the poverty line, civil-society groups estimate that half of the population is living below it • People living in rural areas, where unemployment was traditionally very high, were much more likely to be poor and had little or no access to basic services such as health care • In theory, health care in Georgia was free, in reality almost all patients had to pay to receive care

8. Georgia • Since gaining independence in 1991, Georgia suffered a rapid and dramatic decline including a catastrophic drop in public health expenditures • During this time, the Georgian government was weak and ineffective, corruption was endemic • Following the Rose revolution (2003) the government made progress in revitalizing the economy and fighting corruption • Public spending on health care remained inadequate (approx 20% of health total expenditure compared to 75% in developed countries) • Inadequate state financing of the health sector means: • Approx 80% of health financing are private expenditures (out-of- • pocket payments) compared to 20%-30% (WHO) European region • Only 6 per cent of general government expenditure goes to health, compared to 14.7 per cent within the (WHO) European region

9. Georgia • The first reform (From 2004 to 2006) • PHC Master Plan I (funded by the World Bank, the EU and the UK) • Aimed to provide universal access to quality basic medical care through a publicly owned and managed system • No one would be more than 15 minutes away from a PHC centre • Included plans to re-train medical staff delivering PHC, and rehabilitate facilities • The second reform (2007-2008) - privatization in the health sector • Bringing health policy in line with the broader national economic policy to promote greater private-sector involvement • The main reason: “Government does not have sufficient funds and capabilities • to operate the public system well” • Dramatic policy change • Abandoning the universal care ideal • Private insurance companies to provide a limited cover to PUPL’s • Insurance premiums to be paid by the government

10. Georgia • The Third Reform (2009 - 2012) • Responsibility of provision of care and building of new health facilities • was shifted to the shoulders of private insurance companies • Introduction of new social plans • Results • The state health programme increased poor people’s access to • health care and reduced inequality in access to care between rural and • urban areas, and among different social groups • Expectations were that privatization of public services (including health care) • and adoption of a free market model will miraculously solve existing problems • “for free”, including inefficiencies, access, availability, equitable distribution, as well as quality, financial mismanagement and corruption issues • However, it’s not only money… • The biggest item of expenditure for households is drugs • Pharmaceutical expenditure as a percentage of health expenditure is 60% • Surprisingly… the drug market is Oligopolistic • Video

11. Georgia • In Georgia insurance market means health insurance • 80% of net earned premiums are health insurance premiums (200 M US$ • in 2012) • Limited (and reducing) number of insurance players • Premiums and conditions dictated by the government (165 & 218 decrees and public employees) • Our participation in the Georgian market • Social programs • Corporate segment • Health provision and building of new hospitals • New administration, fourth reform? (2013) • Back to state provided universal cover? • Budget issues • Operational capabilities issues

12. A word about Archimedes Health Developments • In Georgia: • Started from zero, experienced enormous growth • Ever changing environment • Cooperation with authorities – critical • Biggest challenge: lack of visibility • In Kazakhstan • Started from Zero, third largest player • Growing organically and waiting for a health reform • Main investors in AHDL:

13. Georgia is one of the poorest countries of the former Soviet Union. According to official statistics, approx. 30% of the population live below the poverty line, civil-society groups estimate that almost half of the population live below it. People living in rural areas, where unemployment is very high, are much more likely to be poor and have little or no access to basic services such as health care. In theory, health care in Georgia was free, in reality patients often had to pay to receive care. Since gaining independence in 1991 after the collapse of the Soviet Union, Georgia suffered a rapid and dramatic decline including a catastrophic drop in public health expenditures. During this time, the Georgian government was weak and ineffective, and corruption was endemic. Since 2004, the government has made some progress in tackling poverty and stabilizing the economy and fighting corruption. Spending on health care and other key sectors remains inadequate. Graph Key health issues Health policy, planning, and financing In 2007, the government introduced a rapid and extensive programme of privatization of public services, including health care. The rationale was that the free market will solve existing problems, including inefficiencies (in particular, issues around cost, access, availability, and equitable distribution, as well as quality, financial mismanagement and corruption). Inadequate state financing of the health sector over the past 15 years has meant that large amounts of health financing (more than three-quarters) are private expenditures (mainly out-of-pocket payments). Although the Saakashvili government has increased health expenditure in recent years, in 2006 the state provided just 21.6 per cent of total health expenditure, compared with around 75 per cent in the World Health Organization (WHO) European region. Only 5.6 per cent of general government expenditure went on health in 2006, compared with 14.7 per cent in 2005 within the European region. Government funding levels are still far below those required to provide basic health care for people and maintain health facilities. The biggest item of expenditure for households is medicines. Total pharmaceutical expenditure as a percentage of total health expenditure was 45.6 per cent in 2000 – by far the highest amount for any country in the European region. While up-to-date statistics are not available, it is reasonable to assume that this amount has not changed significantly in the last decade. Major concerns about the privatization of health care The vision underlying privatization of health care is to build up a system based on private provision and purchasing, which would work in a competitive environment. However, the health sector has certain characteristics that make it distinct from the conventional market approach based on supply and demand for goods and services. There are serious concerns that privatization will result in even greater inequalities in access to health care. Currently, health-care reforms are being taken on a step-by-step basis, with no overall strategy and vision in place. There is an urgent need to ensure that adequate measures for supervision, regulation, and human resource development are adopted and implemented. Health-Care Reform in Georgia A Civil-Society Perspective: Country Case Study , Oxfam International Research Report, May 2009 10 Georgia • Final remarks • Private sector played a significant role in improving the availability and • equitability of health care for the poor in Georgia • Private sector mobilized funds and management capabilities not • available at the governmental level • Transparency, uniformity and access to care improved • However, miracles don’t abound… • Underfunding • Lack of visibility and a clear direction • Market failures • Are representing a significant threats to the progress achieved

14. Thank You !!! Yaron@archimedes-insurance.com