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3.4 Health policies in transition economies

3.4 Health policies in transition economies
Oxford Textbook of Public Health

Health policies in transition economies

Son N. Nguyen and Julio Frenk


Definition of transition economies

Why do health policies in transition economies deserve a separate discussion?
Social and economic contexts

Socio-economic transition in the former Soviet Union and Central and Eastern Europe

Socio-economic transition in China and Vietnam
Recent trends in health status of transition economies

Recent health trends in the former Soviet Union and Central and Eastern Europe

Recent health trends in China and Vietnam

Emerging health problems in transition economies

Possible explanations for the health crisis in transition economies of the former Soviet Union and Central and Eastern Europe
The former health-care systems in transition economies
Policies to reform health-care systems in transition economies

Policies to reform the financing mechanisms of public health

Policies to reform health services
Public health and policies in transition economies

The inherited public health system

Impact of transition on public health

Consequences of a weakened public health function

Recent changes in public health policies
Implications for health policy
Chapter References

After defining the relevant terms, this chapter describes the profound socio-economic changes that have been happening in transition economies. Secondly, it reviews the recent health trends in these countries and their possible explanations. Thirdly, it provides an overview of the current state of health systems in transition economies and examines their health strategies. Emphasis is placed on the discussion of policies undertaken to reform health service and health finance in transition economies. Lastly, it raises issues to be considered in the formulation and implementation of future policies.
In this chapter, it would be impossible to examine in detail the situation in each of the 30 transition economies, so a more general approach is taken with a discussion on the common trends in health and health policies in transition economies. For country-specific discussion, the cases of China and Russia—the world’s two largest transition economies—are focused upon. The chapter covers other transition economies, although in less detail. Much of what is analysed will no doubt continue to change in the near future.
Definition of transition economies
Generally, the term transition economy is used to refer to a country which is transforming from a predominantly state-owned centrally planned economy into a system with a free-market orientation and significant private ownership. Such transformation, which has been taking place in many countries around the world, is one of the most important historical events of the last 15 years and has dramatically changed the lives of hundreds of millions of people.
There is as yet no consensus on the official list of transition economies. Although a few other countries in Africa and Latin America may fall under this category, international agencies such as the International Monetary Fund and the World Bank tend to use the term exclusively for formerly communist economies (World Bank 1996; IMF 1998). However, unlike the World Bank, the International Monetary Fund excludes China and Vietnam from its list of transition economies, where economic change has not been accompanied by fundamental political reform. Since the changes in the health systems of China and Vietnam bear much resemblance to those in other former communist countries after the initiation of economic reform, these two countries should be included in the discussion on health policies in transition economies. Thus this chapter employs the World Bank’s list of 30 transition economies, which encompasses the following:

the newly independent states of the former Soviet Union (Armenia, Azerbaijan, Belarus, Estonia, Georgia, Kazakhstan, the Kyrgyz Republic, Latvia, Lithuania, Moldova, Russia, Tajikstan, Turkmenistan, Ukraine, and Uzbekistan)

its former communist allies in Central and Eastern Europe (Albania, Bosnia, Bulgaria, Croatia, the Czech Republic, Herzegovina, Hungary, the former Yugoslav Republic of Macedonia, Poland, Romania, the Slovak Republic, Slovenia, and the Federal Republic of Yugoslavia)



There should be a clarification of two concepts: health in transition economies and health transition. The first term refers to the health situation during the transition process of former centrally planned economies, which in many cases means an acute crisis with a worsening of many health indicators. This will be discussed further below. Conversely, the second term (also known as epidemiological transition) describes complex long-term changes in the health and disease patterns of specific populations. These changes are usually closely related to major economic, social, and demographic transformations of societies. In its original formulation by Omran (1971), the epidemiological transition referred to a linear undirectional process of change from a pattern dominated by infectious diseases to one where chronic and degenerative ailments dominate. There have been modifications to the original theory, such as the possible overlapping of stages, the reversibility of the patterns of diseases, and the coexistence of pre- and post-transitional pathologies (Frenk et al. 1989).
It is notable that for the former Soviet Union and Central and Eastern Europe, the recent acute health crisis during the socio-economic transition has taken place against the backdrop of an on-going health transition during the last three decades. This health transition appears to have a new pattern of mortality which deviates from the collective experience of other developed countries and other middle-income countries in Latin America and Asia (Murray et al. 1992; Kingkade and Arriaga 1997).
Why do health policies in transition economies deserve a separate discussion?
The situation in transition economies is unique for two reasons. Firstly, the transition has opened up both enormous opportunities and challenges. In the long run, a free-market economy is expected to result in improvements in living standards and, ultimately, the health of the people through higher income growth and the provision of more resources for human welfare. Historically, income growth has been one of the most important factors, which explains the rise in life expectancy of a nation (World Bank 1993). However, in the short term, transformations often led to profound social, economic, and, in many countries, political upheavals that affected the welfare and health of many of its citizens. In this context, health strategies can help to ease or exacerbate the health problems of the transitional period. Secondly, sharing similar legacies of the previous health systems, transition economies are embarking on a health-care reform process by adopting policies that bear much resemblance in nature. During this reform process, these countries are also facing many common obstacles.
Social and economic contexts
One-third of the world’s population live in transition economies. The two largest transition economies, China and Russia, rank numbers 1 and 6 in population terms, with 1230 million and 145 million inhabitants respectively. Variations exist among countries in transition in terms of levels of economic and human development (Fig. 1). For example, gross national product per capita ranges from US$310 in Vietnam to US$9840 dollars in Slovenia in 1997. Of all 30 transition economies, only one country (Slovenia) is in the high-income group. For the remaining transition economies, there are six upper-middle, 13 lower-middle, and 10 low-income countries (World Bank 1999). The Human Development Index, which is published by the United Nations Human Development Programme, quantifies a country’s development level based on such factors as life expectancy, education, access to clean water, and adjusted gross domestic product. According to the 1995 Human Development Index, Slovenia and the Czech Republic are the only two transition economies ranked in the high human development group. All the remaining transition economies are in the medium category, with rankings ranging from 67 to 122 (out of 174 countries) (UNDP 1998).

Fig. 1 Gross domestic product (GDP) and health expenditure per capita for selected transition economies, latest available year. (Source: World Bank 1999.)

Socio-economic transition in the former Soviet Union and Central and Eastern Europe
The countries of the former Soviet Union and Central and Eastern Europe started the rapid transformation into market economies in the early 1990s, and since then there has been a decade of tremendous change and challenge. Most of them had to undergo major social, political, and economic upheaval. For some, social change came in the form of a break-up into smaller states, or even wars.
Regarding the economic reform, the transformation in the former Soviet Union and Central and Eastern Europe was dramatic with the freeing up of prices, decentralization, and privatization. However, countries of the former Soviet Union and Central and Eastern Europe suffered from a profound fiscal crisis. While deep economic recession led to declining national incomes, effective mechanisms required to collect tax in a market economy were not yet in place. These two factors brought about falling government revenues in most countries of the former Soviet Union and Central and Eastern Europe (Ensor and Thompson 1998). As a result, there was a steep reduction in public expenditures, which in turn translated into a general deterioration of public services and erosion of social protection mechanisms. Severe economic recession has also led to high unemployment rates and widening income gap.
The situation is especially difficult for the former Soviet Union, where government revenue fell by more than 60 per cent between 1991 and 1995 (Ensor and Thompson 1998). Russia and the former republics of the Soviet Union in Central Asia have been particularly hard hit by the economic recession. Severe recession in the absence of reliable social safety nets make the poor extremely vulnerable. For example, Russia entered transition with 10 per cent of the population living below the then minimum consumption basket. Since that time, there has been a sharp increase in poverty, and by 1993 about 32 per cent of the population was living below the revised official poverty line (World Bank 1995a). In Kazakhstan, 73 per cent of the population lived below the minimum subsistence level in 1997, compared with 16 per cent in 1989. During the past 7 years, the number of people registered as officially unemployed has increased more than 60-fold in Kazakhstan, and the difference between the richest and the poorest in its population is now almost 20-fold (Almagambetova 1999).
Socio-economic transition in China and Vietnam
Compared with the situation in the former Soviet Union and Central and Eastern Europe, the transition process in China and Vietnam has been mostly economic and incremental in nature. In these two countries, economic change has not been accompanied by fundamental political reform and the transition has not led to acute social and political turmoil.
Although China introduced economic reform in the late 1970s, 10 years earlier than transition economies in Europe and central Asia, the pace of reform has been gradual. The formation of the free market began in the agricultural production and 5 years later spread to urban sectors. Chinese economic reform has succeeded in achieving continuous economic growth. The annual growth rate of the Chinese economy has been about 8 to 10 per cent for the last 10 years. Per capita gross domestic product (adjusted for inflation) increased by 7 per cent between 1980 and 1997 (World Bank 1999). The proportion of Chinese people living below the property line was only 6 per cent in 1997. Economic success has enabled China to maintain a better and more effective social safety net than Russia and other countries of the former Soviet Union (Liu et al. 1998).
In a move that closely mirrors the Chinese process, Vietnam cautiously implemented market-oriented reform in 1986 and it has been able to increase the real income of its people. Although for the last couple of years, Vietnam’s growth, at a rate around 5 per cent, has not been as impressive as it was during the first 10 years of reform (when it was 8 per cent), the overall record of its reform policies has been fairly good.
Recent trends in health status of transition economies
Although variations in health exist among transition economies, in general they have all faced important health challenges during the transition period to free-market economies. The dramatic socio-economic disruptions have been reflected in recent changes of the health status of many transition economies.
Recent health trends in the former Soviet Union and Central and Eastern Europe
The health status of the former Soviet Union and Central and Eastern Europe started to lag behind that of Western Europe in the early 1970s. However, it was only during the early phase of transition in the early 1990s that a health crisis occurred in Eastern Europe with a level unprecedented in the peacetime history of industrialized countries in this century. For example, in the early 1970s, life expectancy of countries in the former Soviet Union and Central and Eastern Europe was 2 to 3 years shorter than that of the European Union. The difference in the early 1990s was more than 6 years (WHO 1994). Except in Albania (where data are not available), the Czech Republic, and Slovakia, increases in the number of avoidable deaths among adults males between 20 and 59 years of age were reported in all transition economies in Eastern Europe and these were chiefly responsible for the drop in life expectancy in such countries. Russia, Ukraine, Hungary, and Bulgaria experienced the most marked declines in male life expectancy (WHO 1999). In contrast to adults, there has been little change in childhood mortality during transition, though the former Soviet Union and Central and Eastern Europe are still lagging behind Western Europe in this health indicator (Koupilova and Leon 1998).
The Russian mortality crisis, with the greatest decline in life expectancy in the countries of the former Soviet Union and Central and Eastern Europe since 1990, is worth discussing in further detail. In only 4 years, from 1990 to 1994, life expectancy declined by 5 years and age-adjusted mortality rose by almost 33 per cent in Russia. The most dramatic change was in male mortality. During this period, male life expectancy dropped by 6 years (from 64 to 58), whereas female life expectancy fell by 3 years (from 74 to 71) (World Bank 1999). More than 75 per cent of the decline in life expectancy was attributed to increased mortality rates among adults from 25 to 64 years of age (Walberg et al. 1998). Overall, cardiovascular diseases (heart disease and stroke) and injuries accounted for 65 per cent of the decline in life expectancy. Increases in cardiovascular mortality accounted for 41.6 per cent of the decline in life expectancy for women and 33.4 per cent for men, while increases in mortality from injuries accounted for 32.8 per cent of the decline in life expectancy for men and 21.8 per cent for women (Notzon et al. 1998).
In the mid-1990s, health began to improve in some former Soviet Union and Central and Eastern Europe countries. Infant mortality and life expectancy improved in the Czech Republic, Hungary, Poland, and Slovenia. Health indicators also began to improve in Russia and some former Soviet Union countries (WHO 1999). However, experience in the past clearly demonstrated that major declines in health and life expectancy can take place rapidly (Notzon et al. 1998) and thus the recovery from the health crisis might be reversed in the event of a new economic recession.
Compared with the European Union, at the end of the 1990s, mortality in the former Soviet Union and Central and Eastern Europe is still significantly higher in many categories such as:

most important causes of death

preventable causes of death

communicable diseases (especially in the poorer countries)

chronic diseases

injuries and suicides.
Age-standardized mortality rates for chronic diseases are extremely high when compared with European Union countries. The divide in mortality between Eastern Europe and the European Union is caused mainly by chronic diseases in adulthood. This fact is explained by lifestyle patterns in the former Soviet Union and Central and Eastern Europe which have the highest smoking prevalence rate for both sexes and the highest per capita cigarette consumption rate in the world (WHO 1997; World Bank 1999). Recent significant increases in prevalence and level of consumption will worsen the smoking-attributable burden of diseases in the future.
With regard to communicable diseases, there was a resurgence of certain epidemics, notably the diphtheria outbreaks during the period 1991 to 1995, and the cholera epidemic in 1994 in Russia (Barr and Field 1996).
Recent health trends in China and Vietnam
Since the beginning of economic reform in the late 1970s, China’s major health indicators have continued to improve. During this 20-year period, life expectancy increased from 67 to 70 years whereas infant mortality rate declined by almost 25 per cent. However, health gain in China has not always been maintained throughout the transition. In the early 1980s, for instance, infant mortality failed to keep up with the reduction rate achieved in the 1960s and 1970s (WHO 1999). Moreover, recent studies have shown that mortality in China is no longer improving in the manner of the previous decades, especially among working age males (Banister 1997). Thus, maintaining the improving trends in health status of its people in the years to come remains a great challenge for China.
Similarly, the overall health gain achieved in the previous decades has continued to improve in Vietnam since the introduction of market-oriented reform in 1986. However, many health indicators such as infant mortality rate and life expectancy are significantly greater than predicted for Vietnam’s income level. As in the case of China, certain untoward health outcomes were also experienced in Vietnam during the transition period. For example, there was a significant increase in malaria deaths between 1980 and 1990 (Gudner 1995).
Emerging health problems in transition economies
Many transition economies have in common emerging health challenges brought about by an ageing population and an increasing burden of non-communicable diseases, which is mostly attributable to tobacco and alcohol use, injuries, and traffic accidents. All of these are taking place in the face of a continued burden of communicable diseases. In the discussion of new health problems for transition economies, comparison of Russia and China might be useful. Although China has been spared the mortality crisis which Russia is going through, both countries have experienced significant increases in injuries, suicides, substance abuse, and mental health problems during the transition period. The situation is more serious in Russia (Liu et al. 1998).
Possible explanations for the health crisis in transition economies of the former Soviet Union and Central and Eastern Europe
There has been a debate on the key determinants of recent changes in the health status of the former Soviet Union and Central and Eastern Europe countries. Many possible explanations have been examined such as:

poor economic performance and widespread impoverishment

break-up of the health system and deterioration of health-care services

poor nutrition


increasing income disparities within transition economies

psychological stress arising from economic and social instability and stress-related behaviour such as tobacco and alcohol abuse.
Researchers suggest that impoverishment is not a sufficient explanation. Obviously, it is not sufficient to depend solely on economic performance to bring about a health outcome. They also argue that contributions from the breakdown in health services, nutrition, and pollution are likely to be modest. Rather, much of the deterioration can be attributed to the impact of social and economic transition, exacerbated by a lack of social cohesion. For example, a study by Walberg et al. (1998) shows that in Russia there is a high correlation between the fall in life expectancy and three socio-economic indicators: labour force turnover (a measure of ‘transition’), high crime rates (a proxy measure of social cohesion), and income inequality (Walberg et al. 1998). However, health behaviour, diet, and tobacco and alcohol consumption are also very important factors. While alcohol consumption is an important cause of premature death in Russia, as shown by the fact that Russia’s life expectancy dramatically improved during Gorbachev’s anti-alcohol campaign in 1985 to 1998 and then dropped after its relaxation (World Bank 1996), smoking seems to have the largest impact in the former Soviet Union as a whole (Bobak and Marmot 1996; Walberg et al. 1998).
There is still controversy about which is the chief contributor to the health crisis observed in most former Soviet Union and Central and Eastern Europe countries. Nevertheless, each of the above-mentioned factors is likely to play a role. Furthermore, the deterioration in health became manifest to some extent before the transition in the former Soviet Union and Central and Eastern Europe. Therefore, past health policies and the inherited health systems also seem to contribute to the health crisis in these transitional economies.
The former health-care systems in transition economies
Discussion of current health policies in transition economies is not complete without an examination of what they have inherited from the pre-existing health systems. Such a historical examination can provide explanations for the strengths and weaknesses of the current systems as well as a rationale for new health policies adopted by the governments.
An overview of the key components of a health-care system is useful for this discussion and can be found in Table 1. The former health systems in transition economies had a number of common features, which were the consequences of past health policies. Their advantages and disadvantages are summarized in Table 2. Although reform has been under way and new financing and management mechanisms have been introduced, numerous imprints of the former systems are still visible in many transition economies.

Table 1 Key components of a health-care system

Table 2 Strengths and weaknesses of the former health-care systems in transition economies

The former health systems were characterized by a strong commitment of the state to the health of the people. There were three major manifestations of this commitment in the way that the health systems were financed and organized. Firstly, before the transition, most countries had the model of free medical services for all, and this principle of universal access and equity was successful to some extent. Secondly, the states developed comparatively well-organized health-care systems with a strong emphasis on prevention. Thirdly, there was a build-up of a more extensive health-care infrastructure per capita in transition economies than in other countries at the same level of development. Thus, there exist comprehensive networks of health-care institutions and adequate numbers of staff in most transition economies as the legacy of past policies. Most transition economies now have higher ratios of doctors and hospital beds per population than the averages for their corresponding income group (Fig 2 and Fig 3).

Fig. 2 Number of doctors per 1000 in transition economies compared with the respective income groups, 1994. (Source: World Bank 1999.)

Fig. 3 Number of hospital beds per 1000 in transition economies compared with the respective income groups, 1994. (Source: World Bank 1999.)

Besides the advantages mentioned above, the former health systems in transition economies suffered from a number of shortcomings. They were poorly maintained, with outdated management mechanisms. Years of rigid central planning and bureaucracy had led to limited efficiency and quality of the services and therefore the health systems were not operating to their full potential. Central planning, which placed great emphasis on meeting numerical targets and input indicators at the expense of quality and outputs, resulted in low-quality imbalanced physical infrastructure and staff in health care. For example, while many hospitals were constructed, investment in hospital equipment or other types of health facilities was neglected. Health professionals might have been abundant in numbers, yet many of them had low skills. Though some former Soviet Union countries had the highest ratios of doctors and beds to population in the world, supporting this massive infrastructure, especially in the event of a fiscal crisis, would not be feasible (Ensor and Thompson 1998).
In the former systems, the structure of primary care was specialist led, with patients either having direct access to specialists or being referred to the latter without receiving much care from general practitioners. Thus, general practice was bypassed and eclipsed. As a result, currently in Russia, half of the district doctors (who are responsible for primary care of a district) are specialists (Toon 1998). Similarly, in Poland there is a shortage of family doctors, who are only able to cover 2 per cent of the population (Thompson 1998). Moreover, doctors were underpaid and became a socially and economically underprivileged group. As state employees, health professionals were paid irrespective of their efficiency and quality. Meanwhile, doctors, often without formal training in health management and administration, were running the system with an authoritarian management style. Many qualified health personnel became disillusioned with the system and started leaving the profession.
There were also equity issues with the former health systems. Despite the principle of universal access, the systems were not delivering equality as people in rural areas had lower access to health care than urban dwellers. In Vietnam, public subsidies for the richest quintile of the population were twice as much the amount spent on the poorest quintile (World Bank 1995b).
With regard to financing mechanisms, the old system relied on an inadequate state budget and a tightly centralized financial management structure in which the allocation of funds did not reflect local needs. Since providers were prepaid an amount based on the number of hospital beds and staff, there was no incentive for them to deploy resources efficiently. This resulted in large numbers of beds, long hospital stays, overuse of secondary-care facilities, and an emphasis on curative rather than preventive care. In Kazakhstan, for example, hospitals received 75 to 85 per cent of the health-care funds while the primary health-care system received only about 10 per cent of the overall budget (Almagambetova 1999).
For the above reasons, the old health systems failed to use resources to maximize gains in health outcomes and left negative impacts on the current systems. Coupled with the fiscal crisis, health systems in transition economies are struggling to cope with the current demand, especially with the extra burden exerted by the deterioration of health during the transition.
Policies to reform health-care systems in transition economies
As part of a major social restructuring, many transition economies have had to overhaul their health systems amid a health crisis associated with the transition as well as the pre-existing problems of the inherited health-care legacy. Just like the move towards democracy, the process of health reform, which has great social and economic implications, has not come without pain. The implementation of new health policies has resulted in a mixed record of both improvements and setbacks. One of the most difficult tasks is to reorganize health care and make it more cost-effective while ensuring its accessibility to those who need it most. Whether this can be done within the tight fiscal constraints in place during the transition to a market economy remains a great challenge. There appears to be conflict between long-term reform agendas and the short-term consequences that they brought about.
This section focuses on the key components of the health system in which transition economies are facing great challenges and important policies that have recently been implemented in response. They include policies to reform financing mechanisms, introduce privatization into health care, and overhaul the management structures.
Policies to reform the financing mechanisms of public health
Generally, to ease the fiscal crisis in the health sector, governments in transition economies are pursuing policies to create additional funding, reduce the range of services, scale down the massive infrastructure of the health sector, and change the way in which care is provided.
While the new finance mechanisms are not yet in place, governments in transition economies are now only able to contribute a small proportion of the health-care budget. With the health sector facing a fiscal crisis, most transition economies have departed—or plan to depart—from heath systems exclusively financed by governments. Efforts to reform health finance include the introduction of varying degrees of private funding instruments, such as medical insurance and direct user charges, and decentralization of health finance.
Introduction of private funding instruments
Medical insurance
Efforts to reform health finance in transition economies are usually led by the social health insurance initiative, which is viewed as an important source of funding for the cash-poor health sector. This reflects the government’s efforts to depart from the traditional system of universal free health care that it no longer can afford. Many transition economy governments are pursuing this policy and, with the adoption of insurance laws, they have now switched from tax-funded health care to social health insurance. The most vulnerable populations, which include the elderly, the young, and the indigent, are usually covered by such social health insurance schemes.
Nevertheless, it has been argued that there may be other reasons to introduce health insurance besides the provision of additional revenue. Social insurance can catalyse organizational change and induce fundamental restructuring of provision. Revenue generated from health insurance will result in greater autonomy for the ministry of health and local health departments over expenditure allocation (Ensor and Thompson 1998).
Direct user charges
User charges have been legalized in many transition economies as another method to recover cost. However, there have been concerns that in the absence of appropriate regulatory structures, such charges can exacerbate inequity and inefficiency since a provider could abuse the system and oversubscribe medications and procedures in order to claim more revenues. For example, a survey in Kazakhstan, where such charges were instituted in 1995, suggested that inpatients bear up to 45 per cent of expenditure per patient in city hospitals (Ensor and Savelayeva 1998).
Decentralization of health finance
Historically, the ministry of finance had vertical control over the ministry of health for funding. The ministry of finance would provide finance to local medical facilities through local administrations and health departments, often bypassing the ministry of health. Usually based on the number of staff and the number of bed days in the previous year, funding flows from the ministry of health do not necessarily reflect the true local needs and expenditure though they are meant as a way of strictly controlling local spending.
The implementation of social insurance promotes fiscal decentralization. It gives the national ministry of health a degree of independence from the ministry of finance. With access to direct funding, the ministry of health is empowered and can develop a more influential role in directing health policy. Local health departments also have greater control over the allocation of local expenditures and thus take up more responsibilities (Ensor and Thompson 1998).
Implementation, results, and challenges
Despite recent reforms, health systems in many transitional economies remain predominantly publicly funded. In 1995, around 70 per cent of health expenditure in the former Soviet Union and Central and Eastern Europe are still covered by general tax revenues. Health expenditure as a percentage of gross domestic product in transition economies was higher than in developing countries at similar income levels (Goldstein et al. 1996). As shown in Fig. 4, health care consumes between 3 and 10 per cent of national income (gross domestic product) in transition economies where data are available.

Fig. 4 Total health expenditure as a percentage of gross domestic product for selected transition economies, latest available year. (Source: World Bank 1999.)

There are three major challenges in the implementation of social insurance in transition economies. Firstly, collecting contributions, which is vital to the sustainability of a health insurance scheme, is a hurdle to many governments in the context of a falling tax base and ineffective tax collecting mechanisms. Evidence suggests that in many countries, revenue obtained from insurance has been lower and less stable than expected. In 1997, a year after the implementation of social health insurance in Turkmenistan, the collection rate was 66 per cent (Ensor and Thompson 1998). Secondly, a mechanism to pay health-care providers is another issue to tackle. In the absence of appropriate regulatory structures, the fee-for-service method creates an incentive for providers to oversupply and leads to overspending of the social insurance scheme. The situation in the Czech Republic in 1992 after the introduction of fee-for-service in 1992 provides an example for this (Fig. 5) (World Bank 1996). Thirdly, there is a need to determine the right benefit package offered by the insurance scheme in terms of the items included and excluded from that package. In the case of Turkmenistan, the excess of the package resulted in escalating costs and a 100 per cent difference between reimbursement and contributions a year after the introduction of the voluntary health insurance system in 1996 (Ensor and Thompson 1998).

Fig. 5 Health expenditure rises after the introduction of social insurance: total health expenditure as a percentage of gross domestic product in the Czech Republic 1990 to 1997. (Source: World Bank 1996.)

Adoption of payroll-based health insurance during the transition has been followed by a marked increase in health expenditure as a percentage of gross domestic product. This necessitates increased efficiency in public sector resource mobilization, explicit shift in cost burden to the active population, and complete introduction of financial incentives in the implementation of social insurance. It is critical that health insurance schemes should be made as effective as possible and based on sound economic and actuarial principles. The design of new health finance mechanisms should provide effective protection to vulnerable groups while, at the same time, encouraging the development of competition among providers. This requires a number of measures to increase revenue and make health expenditures more cost-effective.
Countries differ in their suitability for introducing health insurance. Using Shaw and Ainsworth’s methodology, Ensor and Thompson ranked the feasibility of implementing health insurance in low- and middle-income countries according to four criteria: proportion of urban population, proportion of industrial workforce, population density, and per capita income (Ensor and Thompson 1998). Table 3 shows the results for transition economies. Consistent with these results, evidence shows that more industrialized countries like the Czech Republic, Estonia, and Hungary (which have high scores in the ranking) have implemented health insurance with relative success. Countries at the bottom of the ranking, like Vietnam and Turkmenistan, achieved very low coverage, especially in rural areas. As a result, sustainability of the health insurance scheme is a great challenge for transition economies with low suitability. For example, mandatory health insurance was introduced in Kazakhstan in 1996; however, the scheme was not sustainable, and it was cancelled 2 years later (Almagambetova 1999).

Table 3 Feasibility of introducing insurance in transition economies

With a new emphasis on cost recovery, health services now tend to be available to those with the ability to pay. There have been concerns and evidence that private payment for health care, especially at the point of delivery, may be a barrier to access for the poor and reduce the utilization of health services. Analysis of a household survey in Kyrgyzstan shows that, in 1996, a quarter of those who were either sick or injured did not seek medical care because they could not afford it (Falkingham 1998). In Vietnam, outpatient consultation has declined by 50 per cent since the late 1980s, from 2.1 visits per capita in 1987 to 0.9 in 1993 (World Bank 1995b). For this reason, necessary government interventions are needed to provide health care for the indigent and public health services.
China offers interesting lessons for reform in health-care financing. It introduced social insurance reforms in the mid-1980s. With the new policies, health-care utilization rates for both urban and rural populations was significantly increased from the mid-1980s to the early 1990s (Chinese Ministry of Health 1994). The challenge is to finance and provide both public health and health-care services to the poor in the countryside, where 70 per cent of the population resides.
Hungary is experimenting with private health insurance, which was introduced in early 1999 as an alternative to the state health-care insurance. However, it has not been very successful because most people cannot afford it (Kovac 1999). Some analysts have warned of the threat of losing previous health gains if unrestrained market mechanisms are used to dominate the health-care sector in transition economies. Better results in terms of efficiency and equity are obtained through public insurance or tightly regulated non-commercial insurance (Evans et al. 1994; Burger et al. 1998).
To help governments prioritize essential services in the face of funding shortages, the World Bank recommends the adoption of a basic package of publicly funded services (World Bank 1993). Georgia has adopted this approach and, furthermore, has made it radical by making the publicly funded package of basic services available to the socially protected only; thus everyone else has to pay for their own health care.
Policies to reform health services
There is an urgent need to improve the quantity, quality, and mix of health services in transition economies while making them more efficient and equitable. Most transition economies are adopting similar policies enabling their health-care systems to depart from the model in which the state is the sole provider of health services, as well as making them more efficient, competitive, and decentralized.
Privatization of the health sector
Most transition economies have adopted legislation to legalize the involvement of the private sector in the production, trade, and distribution of drugs, medical equipment, and supplies as well as in the provision of health services. By doing this, transition economies have introduced market-oriented mechanisms into the health system, namely consumer choice and competition between different health-care providers.
Reform of management structures
This includes decentralization of health management, in which local health institutions are granted larger managerial autonomy and clearer ownership.
Reform of human resources
Financial incentives for health workers to improve quality and productivity are created by policies to introduce performance-based financial rewards. Reform efforts in medical education have been taken to introduce the concept of family practice and to train general practitioners.
Promoting cost-effectiveness of the delivery system
This is being accomplished by restructuring in favour of primary care, promoting general and family practice of medicine, and eliminating unnecessary hospital capacity and staff.
Establishment of linked organizations
One of the main features of the health system in a democratic society is the presence of organizations that serve as links between institutions and resources. These include associations of public health professionals, doctors, and other health-care workers, hospitals, health professional schools, and so on. Such organizations, once absent in the former health system, are now emerging in transition economies. One example is Romania where, after than 50 years of restrictions, professional associations, non-governmental organizations, and health advocacy groups have been allowed and are now actively contributing to the reform process (Ionescu et al. 1998).
Implementation, results, and challenges
The extent of success in implementing policies to reform health services varies among transition countries.

Data mostly available for the public sector indicate little significant restructuring of the public sectors health networks in most transitional economies.

Currently, there are not enough data to assess the impact of new policies on the improvement of quality and efficiency of care except in a few cases.

Privatization development has been rapid in the pharmaceutical and dentistry areas, slow in ambulatory care, and negligible for hospital care.

There have been many discussions on scaling down the massive infrastructure of the health-care system with such measures as reducing staff and closing hospitals. However, political constraints often prevent the successful implementation of such policies, except in Central and Eastern Europe where some success have been reported with decreases in number of hospital beds and average hospital stay (Berlin and Hunter 1998).

In some countries, there has been a gradual shift towards the model of general practice and primary care based on gatekeeping and integrated care. In Russia, a move towards general practice started in 1992.
The major challenges facing most transition economies include the following:

disparity in access to health services between the rich and the poor, the rural and the urban;
temporary market failure in the supply of heath care and drugs through weaknesses in regulations;
resistance to the shift towards general practice from both the public, who are used to bypassing general practitioners, and the specialists, who feel that their jobs are threatened by the changes;
regulation and quality control of both public and private services.

Public health and policies in transition economies
The inherited public health system
Historically, transition economies have a long history of well-developed public health programmes. However, the public health model is many former communist countries is the outdated vertical ‘hygiene’ model with a strong emphasis on sanitation, food, and water safety. With regard to health promotion and disease prevention, this old public health system does not encourage active participation of the population. People are simply expected to carry out the instructions of health professionals. Modern public health has demonstrated that this practice is not effective in bringing about behaviour change. Instead, it leads to a passive attitude, as people do not take personal responsibility for their own health. As a result, they do not actively participate in health promotion, disease prevention, or the healing process. Thus a departure from the old model of public health is needed for transition economies to cope with the increasing burden of behaviour-related chronic diseases.
Impact of transition on public health
Comprehensive health reform must include the public health component. Unfortunately, the public health function was neglected during the early phase of transition. Insurance and privatization-led health-care reform was higher on the political agenda and received more media and public attention in most transition economies. The transformation to the market-oriented finance mechanism has weakened the financing of public health function for two reasons. Firstly, as elsewhere in the world, there is competition between public health needs and individual health-care needs for funding, which became even more limited during the fiscal crisis. Secondly, in most transition economies, the general direction of health reform is towards decentralization of public sector services, privatization, recognition of patient choice, and introduction or increase of out-of-pocket expenses. Such application of market values to health care has created opportunities for improving the demand-focused health services.
Consequences of a weakened public health function
Thus, during transition, public health activities face major challenges which include the lack of funding and the ability to adapt public health systems to cope with the changing patterns of health risks and diseases. Even the good legacy of primary care has been eroded during transition. For example, in China, public financing of the Epidemic Prevention Service, the backbone of public health programmes, has fallen from 0.11 per cent of gross domestic product in 1978 to 0.04 per cent in 1993. This, together with fiscal decentralization, has reduced the capacity of public health programmes in China’s poorer counties. Introduction of user fees has reduced demand for public health services such as preventive services and tuberculosis control (Liu et al. 1998). As a result, certain public health indicators, such as immunization coverage, deteriorated in many poorer areas in the early 1990s. Certain epidemic outbreaks were also traced back to breakdown in public health programmes (Liu et al. 1996).
Recent changes in public health policies
The need for public health reform is now being felt in many transition economies. The realization that public health cannot be left to unrestrained market forces in China was reflected in a landmark national health conference in December 1996 which adopted major policies to address public health problems (Chinese Ministry of Health 1997). In the former Soviet Union and Central and Eastern Europe, many countries, such as Lithuania, the Russian Federation, and Moldova, are seriously discussing comprehensive health policies and reviewing their public health services. Estonia now allots a proportion of heath insurance premiums for public health activities (Vienonen and Springet 1998).
Transition economies are facing two public health challenges. Firstly, since public health services are ‘public goods’, they should be state financed. Thus governments need to draw up mechanisms to fund public health activities from their tight health budget. Secondly, the single largest contributor to the health gap between Western Europe and transition economies in Eastern Europe is cardiovascular and cerebrovascular disease, for which the main risk factors are alcohol consumption, smoking, obesity, unhealthy diet, and lack of exercise. All these factors are more prevalent in the former Soviet Union and Central and Eastern Europe than in Western Europe, and one single factor, smoking, is far more prevalent. In fact, the former Soviet Union and Central and Eastern Europe have the highest smoking prevalence for males and females (41 per cent and 26 per cent respectively) among all World Bank regions. Smoking prevalence rates are also very high among males in the other transition economies in East Asia, China, and Vietnam, where about two-thirds of adult males are regular smokers (Jha and Chaloupka 1999). In this context, transition economies need to adopt and implement effective public health measures for the control of the large burden of behaviour-related mortality and disability.
Implications for health policy

Parallel to policies to privatize and decentralize the economy, there have been similar efforts in the health sector. However, health policies tended to follow or to be subservient to economic policies (Liu et al. 1998). Certain policies to reform health finance and health services have been adopted just to serve the economic–fiscal–political reform agenda without the consideration of improving health as the ultimate goal of health reform. The negligence of public health function in many transition economies is an illustration of this.

Better evidence is required to orient the formulation of sound health policies. Yet good policies are only the first step to successful health reform. Effective implementation of policies requires legislative and regulatory infrastructure as well as administrative capacity. In fact, health-care reforms in transition economies are facing similar challenges as other sector reforms. In this regard, there is an argument that institution building should received more attention as reform without the right regulatory framework is bound to fail (Economist 1999).

Reform should aim to enhance the performance of health systems by promoting equitable access to health services that are affordable, effective, well managed, of good quality, and responsive to the population.

Reform should also aim to secure sustainable health-care financing by mobilizing adequate levels of resources, establish broad-based risk-pooling mechanisms, and maintain effective control over public and private expenditure.

The establishment of schools of public health for training in health policy, economics, and management in countries where they did not exist before is an important step towards a good health system in the long run.

In a democratic society, there is extensive involvement of the public in the formulation, implementation, and validation of health policies. Hence the development of the civil society in a transition economy is helpful for health reform. Representative democracy can be a major facilitator of civic trust and social capital and should be applied to the health sector as well (Szreter 1999).

The concept of self-responsibility in health should be introduced and reinforced in transition economies. This will also lead to greater participation of citizens in health promotion and disease prevention.

During the transition period, state intervention is a complex issue. On the one hand, the argument is that the role of the state (with its strategic planning and directing capacity) is more important than ever during the transition. On the other hand, there is a need for the state to embrace the concept of ‘civil society’ in health through communication and civic participation (Szreter 1999).

No health reform is comprehensive when the public health component is neglected.

A functioning health-care system must be maintained throughout the process of reform. Thus there is a need for policy-makers to adapt rapidly, and to design and implement strategies to minimize disruption in essential health services.

It is necessary to monitor carefully the health status of the population during the transition, especially among the marginal groups.

Many of the challenges faced by transition economies are shared by other countries. Learning from the successes and failures of others can make reform efforts more effective. International co-operation can help in the production and dissemination of sound evidence on health policies.
Historical evidence indicates that economic transformation, even with success and growth, can translate into social insecurities and health problems. Thus countries in Western Europe, Japan, the United States, and Australia had to endure severely compromised health when they first experienced industrialization in the nineteenth century (Szreter 1999). Similar disruptions can be observed a century later in many transition economies, especially Russia and other countries of the former Soviet Union, despite the improvement in medical technology and the new wealth of public health knowledge that has been achieved in the interim. The issue here is not whether transition economies should continue their reform process or not, since this has been historically proven necessary for the development of a country. Rather, it is about what the government can do to alleviate health problems through the adoption and implementation of sound policies. Since the health of a nation is strongly dependent on social, macroeconomic, and political stability, sound health policies have to go hand in hand with adequate economic policies and a set of measures to ensure a social safety net to protect the relatively deprived. Better health for the population should be the ultimate goal of health policies. Reforming health services and finance is just a means towards that end.
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One comment on “3.4 Health policies in transition economies

  1. I discovered your homepage by coincidence.
    Very interesting posts and well written.
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