1. Georgian Health Care 2020 Washington DC, February 1-2, 2010
Performance of Health Financing Function and Overview of Main Policy Challenges
Bakhuti Shengelia
Senior Health Specialist
East Asia and Pacific Region, Human Development Network
The World Bank
Georgian Health Care 2020
Washington DC, February 1-2, 2010

2. Outline Current architecture of the Georgian health care system
Framework for evaluating the performance of the financing system
Health expenditure profile and trends
The issue of out-of-pocket payments
Composition of private expenditure and drivers of cost inflation
Financial access to health services
Impact of health care costs on households and equity in health financing
Conclusions and Policy issues to be address

3. Organization of Health Financing
I will not go into detailed historical overview of the organization of the financing system. It is well known that before 1995 the system was based entirely on Semashko model and was financed from the state budget and vast amount of informal payments.
A social health insurance model was introduced in 1995 and existed until The SHI managed to pool funds only partially and its revenues made up only 5% of the entire health expenditures, the benefit package was very vague and imbalanced, the fund accumulated huge arrears to providers due to annually increasing financial deficits. These shortcomings led to its abandonment in 2004.
Currently the organization of health financing is such that the state plays very little role in the flow of funds and has almost no role in deciding how funds will be used and what services will be purchased. The system is mainly fueled with private finding. Whatever element remains public in the system, is funded from general taxes. Public money is used to fund public health services implemented by the national Center of Disease Control and Public Health. Local governments also participate in funding public health services. The remainder of the public money pays for curative health services included in the limited basket of state health programs and money goes to private health insurance in the form of insurance subsidies for certain population groups, or directly to health care providers for the services provided to the specific beneficiary population groups. The rest of the system, about 70% of the money that flows in the system, is direct transaction between the consumer and the provider. There is a small, very negligible share of the population that is insured by private insurance.

4. What Do We Mean By Performance of the Health Financing System?
Sub-functions
Performance goals
Protection of population from financial risk/shocks
Raising resources
Pooling
Ensuring access to services for all when needed
Purchasing
Fairness of financial contribution
No matter how the health system is organized and no matter the country context health financing function in any health system has the following performance goals…
In order to achieve these goals the health financing systems have to perform three generic sub-functions: they have to raise resources, pool the resources in order to better deal with the health care risks, and purchase services strategically.
Very often efficiency is quoted as one of the goals of the health financing. However efficiency in its own right is not as important as the these three goals. Efficiency is instrumental and essential in order make resources work better and in the environment of the resource limitation make sure that the goals are achieved.

5. HOW MUCH are we spending on health?
who pays for health care?
Let me first address the issue of health care expenditures and discuss how much we are spending on health, who pays for health care, and how our expenditure profile compares to that of other countries.

6. Health Expenditures in Relation to GDP
In % of GDP
In 2009 – 10.1% of GDP
EU – 8.9%
CIS – 5.5%
One of the indicators used for comparing countries in terms of how much they spend on health care is the health expenditure in relation to total GDP. In the European Union it has been around 8.9%, currently 8%. Georgia spends 8.6% of its GDP on health, which is comparable to the rest of the Europe and higher than most countries in the post soviet block. However this indicator gives only a limited information about health expenditures.
Very often countries ask question – how much in absolute terms – shall we spend on health care per capita? There have been several attempts to put a dollar quantity behind this question. The commission of the macroeconomics and health came up with some estimate in Later calculations have been done for MDG package. For example it is estimated that in order to deliver the health MDG related package of basic health services one needs to spend roughly USD per capita.

7. Per Capita Total Health Spending
US$245 equivalent (GEL409.9)
In $PPP terms – $459
CIS in $PPP terms – $621
In terms of per capita spending Georgia spends 410 Laris per person in 2008, which is equivalent of 245 USD. However, dollar has different purchasing power in different countries - 1 dollar busy much more in Georgia than it buys in Japan, lets say. Therefore such comparisons usually are done in so called International dollars which are adjusted for the purchasing power parity. In international dollars Georgia spends 459 USD PPP. While in relation to GDP the country seems to be spending generously, per capita spending is rather small which puts Georgia on the 9th place from the bottom in the wider European region, including Central Asia. The average per capita spending in CIS is 621 and in EU almost 3000.
Even though in absolute terms Georgia does not spend much per capita, it is fair to acknowledge that in the past 8 years the country has significantly increased health spending. The government really deserves credit with this regard.

8. Trends in Health System Financing 2001-2009 (GEL,000,000)
Private increased by %
Public increased by %
Other sources by %
Throughout 90s and early 2000 the system was struggling. It was severely underfinanced and the health care facilities had to deal with huge unfinanced mandate. Over the past 8 years, the private expenditures increased by 320%, public by 560% and external funding by 230%. This is a very sharp increase. Currently the country spends 1.6 million GEL, while in 2001 it was around 500,000 USD. Particularly commendable is the fact that greatest increase has been in state funding, however it remains true that still the bulk of health care spending is private.
Source: National Health Accounts , MOH

9. Composition of Health Expenditures
98% of private spending is out of pocket
Composition of health care expenditures in terms of sources of funds is often used as indicator of performance of health financing function. General accepted view is that bigger the share of public funding the better it is in terms of the population’s risk protection and access to care. The richer countries usually spend more from the public sources on health care than from private sources, contrary to belief that as countries get richer their population shall spend more privately.
Georgia’s health care system is well known for extremely high share of private expenditures, which constitute 71.%. Public expenditures make only miniscule 23%. What is even worse is that almost all private expenditures are out of pocket.

10. Out-of-Pocket Payments in Georgia and the rest of the European Region
Out of pocket payments as % of THE (2008)
High share of out-of-pocket expenditure is a negative feature of health financing system. Lets see how Georgia compares with the other countries in the European region. As you can see on this graph, we are one of the worst performers in this regard falling in the bottom three with one of the highest out of pocket spending as a share of THE. This is a way far from the CIS average not to say anything about EU average.

11. Why Are the Out-of-Pocket Payments Bad?
So why is OOP bad? The reason why we do not like high OOP is because it is directly and proportionally related to the risk of financial catastrophe and impoverishment due to the health care costs. In this chart you can see how the risk of catastrphic health care spending and impoverishment increases with along with OOP, plotted on the x axis. At the OOP of 70% that is where we stand the risk is really high.

12. Higher Out of Pocket Payments Mean Higher Risk of Financial Catastrophe Related to Health Care
And as I said earlier the richer the country is and stronger the health financing system the smaller is the share of outofpocket payments.

13. How Much Priority Does the Health Sector Enjoy in the Government Spending?
The size of the health care spending in the total government spending is the direct measure of how much priority the government gives to the health of the nation!
One of the main indicators to measure how much priority the government gives to health care is the share of the total government spending dedicated to health. There is no fixed ratio it is all relative. Very often experts refer to so called Abudja declaration where countries agreed that at least 15% of the total government spending shall be earmarked for health. In this regard Georgia is rather a low performer. It is in the bottom five in the EURO region. This graph clearly demonstrates the huge performance gap between Georgia and the rest of the EUROP and CIS. It has to be mentioned for the sake of fairness that in the mast two years, the indicator has improved, but it still remains lower than desirable.
Source: National Health Accounts, Georgia, WHO HFA database.

14. How Would Health Spending Change if the Government Gave More Priority to Health?
Current
(7.8 % of total gov. Spending)
Scenario 1
12.9% of the total gov. spending (WHO-EURO average)
Scenario 2
9.3% of the total gov. spending (CIS average)
Scenario 3
15% of the total gov. spending (Abuja declaration)
Total gov. spending
419 mln GEL
696 mln GEL
502 mln GEL
810 mln GEL
Public expenditure as % of THE
23%
38%
28%
45%
Per capita spending
410 GEL
PPP$ 459
472 GEL
PPP$ 530
427 GEL
PPP$ 479
498 GEL
PPP$ 560
THE
1.8 bln (GEL)
2.1 bln (GEL)
1.9 bln (GEL)
2.2 bln GEL
Health spending as % of GDP
10.1%
11.7%
10.6%
12.2%

15. Does Health Financing System Provide Adequate Access?
Can People Get Care When They Need it?
So to conclude the expenditure profile we shall reiterate that low public spending very high out of pocket payments and low priority given to the health sector in the government spending are the key policy challenges that country needs to address.
As I mentioned earlier health financing system’s performance is measured by the degree of financial risk protection it offers to the population and extent to which it allows people to use care when they need it.
The health expenditure profile is very much related to these parameters as well.

16. Trends in Health Insurance Coverage
As said earlier in 2004 Georgia abandoned social health insurance, but it has not been replaced by private insurance and the level of insurance coverage remains very low. This chart shows insurance coverage by different schemes in 2007 and Currently as little as 33% of the population has any form of insurance coverage. The predominant majority is insured under the MIP program which is a state sponsored program for the economically vulnerable groups. Next large group is teachers and military. Very small fraction is privately insured mostly through employers. The government subsidized so called 5 lary insurance did not prove viable or attractive to the population and remained very small.
Insurance coverage would not matter if there was a national health service model and the state was providing care to the population. But when the state’s role in health care has been minimized such low insurance coverage is really a serious policy challenge.

17. Utilization of Health Services
Indicator
Year
Total
Urban
Rural
Average number of consultations / contacts per person per annum (all sources of care) (2)
2007
2.01
2.36
1.67
2010
1.91
1.85
***
1.97 **
Average number of outpatient consultations (all types) per person per annum (1)
1.74
2.03
1.46
1.66
1.60
1.72
Percentage of total population who reported being sick with any condition in last 6 months and consulted a healthcare provider (2)
59.5
59.8
59.3
60.3
59.6
60.9
Percentage of occurrences of acute illness in the past 30 days where a healthcare provider was consulted (2)
56.5
55.6
57.9
66.0
68.0
64.3 *
Given these realities – low insurance coverage, high out of pocket spending, it is not surprising to see that Georgia has quite low health care utilization, which unfortunately shows the tendency of deterioration. Per capita consultation rates have fallen in the past 3 years , while the morbidity has increased.
Notes: (1) Significance of difference not tested; (2) Statistical significance of difference with baseline figure: *** p<0.01; ** p<0.05; * p<0.1.

18. Do Georgians Use More or Less Health Care Compared to the Rest of the Region?
Outpatient contacts per person per year - 7, in 1990
Outpatient contacts per person per year – 1.9 in 2009
PHC utilization rates in Georgia are amongst the lowest in the WHO European region. The has been sharp decline in the number of PHC consultations per patient per year. Outpatient contacts fell from between 7-8 visits per person per year in 1990 to 1.4 visits per year in 200, and although increasing since then, it had reached only 1.95 per person per year in 2007.
Inpatient care in Georgia is provided by secondary and tertiary care institutions,
namely by general multi-profile and referral hospitals, scientific research
institutes, specialized hospitals and dispensaries. Hospital admission rates
declined sharply from 13.6 per 100 inhabitants in 1990 to 4.43 in In
2007 Georgia had one of the lowest acute care hospital admission rates in the
WHO European Region, at just 6.3 per 100 population, when the average for
the EU was 17 per 100 (2006) and the CIS was 20.7 per 100 (WHO Regional
Office for Europe 2009).

19. Cost of Care is a Serious Access Barrier
2007
2010
Percentage of consultations where medicine was
prescribed
82.1%
80.4%
prescribed but not purchased because it was too
expensive (base: consultations where medicines were prescribed)
14.5%
16.3%
Percentage of consultations where a lab test was
43.5%
45.1%
prescribed but not done because it was too expensive (base: consultations were lab tests were prescribed)
9.6%
9.3%
Percentage of population who were reported to need hospitalization in the last year but were not hospitalized
4.4%
3.4%
Percentage of population who were reported to need
hospitalization in the last year but were not hospitalized
because it was too expensive/they did not have
enough money (base: those that were not hospitalized)
89%
76.4%
So why are the utilization rates dropping? It seems that people are spending more and more on health care yet the system fails to give them adequate access for the money they spend. The studies show that cost of care is the one of the main barriers.
Medicine and lab tests were prescribed in some 80 and 44 percent of consultations respectively, and these proportions were similar in 2007 and The proportion of individuals who said that they did not purchase all the medicines prescribed because they could not afford them is slightly higher in 2010 (at 13%) than in 2007, but this difference is not significant. The same measure for lab tests is unchanged and is much lower than for medicines, at around 4% of all consultations.
The proportion of individuals who said that they required hospitalisation but were not hospitalised, is small and has declined slightly but significantly. The proportion who said the same, but gave the reason that they could not afford it, also declines significantly from 3.9 to 2.6%. This suggests that changes implemented since 2007 have reduced the frequency with which people are excluded from hospitalization due to cost.
Note that this was the self-reported need for hospital care and was not necessarily based on referral by a doctor.

20. Composition of Per Capita Private Spending (in GEL)
435% increase in pharmaceutical spending
323% increase in inpatient spending
289% increase in outpatient spending
We said that health care costs are prohibitively high and limit access. Lets see what people spend on when paying for health care. According to 2009 data the largest share of private expenditure on health falls on medicines and consumables, followed by inpatient, which tends to be half of what people spend on drugs. The cost of drugs and expenditures on them seem to be rising quite quickly. In the past 8 years expenditures on drugs increased by 435% while increase in other categories has been much less.
Source: National Health Accounts, MoH

21. Expenditure on Pharmaceuticals as % of Total Health Expenditure (OECD versus Georgia, 2008)
Private Expenditure of Pharmaceuticals as % of Total Private Expenditure on Health
Georgia ranks highest in the European region in terms of expenditure on drugs. In the upper graph you can see how much some of the OECD countries spend on drugs, they range somewhere near 25% or lower, Georgia spends twice as much? Why? Are we richer than OECD countries? Are we sicker? None of these two…
More than half of the private expenditure is on drugs and this has been increasing over the past 8 years.
Sources: NHA 2009, Georgia, MOH; OECD health database, HUES Georgia 2010.

22. Changing the pattern of private spending between 2007 - 2010
Inflation of Cost of Drugs and Its Impact on Private Health Expenditures
Inflation between
Changing the pattern of private spending between
Cost of drugs has increased much faster and higher than the overall consumption price index.

23. Price of Drugs in Georgia Versus Other EU Countries
The numbers suggest there is wide variation in price differences between Georgia and the EU countries (Greece, Italy, Czech Republic, Hungary, and Poland). A general pattern, however, is that original (or reference brand) drugs are typically more expensive in Georgia than in the EU, often by a wide margin, while most generic drugs are cheaper in Georgia. This is consistent with reports that both primary care doctors and pharmacists receive payments from the pharmaceutical companies in order to encourage the population to purchase specific (higher-cost) drugs. The population, meanwhile, may distrust lower-cost drugs

24. Estimated Average Combined Wholesale and Retail Margins, Georgia and Five EU Countries
Figure 7 shows estimates of the combined wholesale and retail margins for Georgia and five EU countries. The Georgian data is based on analysis of customs data, while EU data reflects actual ex-factory, wholesale, and retail prices obtained from OBIG/PPRI. The Georgian average is clearly much higher than in other countries. Because drugs are high-value, low-volume products, these large differences are unlikely to be caused by inefficiencies in the distribution system. The Georgian retail margin is reportedly quite small, as they are reduced to a minimum by wholesalers (where the market is most concentrated). A major factor behind these results is that pharmacy margins (in some cases both wholesale and retail) are regulated in all 27 EU member states. Typically they take the form of either a linear mark-up or a regressive scheme (higher mark-ups for cheaper drugs, to encourage pharmacists to dispense lower-cost formulas). The results in Figure 7 for the EU countries reflect such policies. However, these are indicative results for fewer than 50 drugs, and thus represent a sub-set of the market requiring further exploration
Source: Georgia Programmatic Poverty, Technical Note #2, June 28, World Bank (data based on the WB survey and OBIG)

25. How Do Health Care Costs Impact Households?
How Equitable is the System?
Now lets talk about the consequences of the high out of pocket expenditures on household economy and social equity.

26. Private Spending on Health in Relation to Total Household Private Consumption
As you can see from this graphs the private spending on health takes up a very large portion of total household consumption. Again you can see how much pharmacetuical consumption is.
Source: National Health Accounts

27. Impact of Out of Pocket Expenditures on Household Economy
As I showed earlier, out of pocket payments increase the risk of catastrophic health care cost sand improverishement. This graph shows risk of catastrophic health expenditures at different threshold levels in different incomes quintiles. WHO defines Catastrophic expenditures that reach 40% or more. In Georgia 11.7% of people face that risk, which increases obviously among the poor.

28. Catastrophic Health Expenditures
Impoverishing OOP puts the emphasis on crossing the poverty line irrespective of the size of payments. Catastrophic health expenditures occur when they exceed some threshold of either total or non-food expenditure. The choice of threshold is somewhat arbitrary, but a common practice in recent literature uses 10 percent of total consumption expenditure or 25 percent of nonfood expenditure. The share of households with OOP exceeding 10 percent of total expenditure in 2007 was estimated to be 17.6 percent in Georgia, while the share of households for which OOP exceeded 25 percent of non-food expenditure was 25.7 percent. A third definition of catastrophic OOP, exceeding 40 percent of “capacity to pay”, was used to calculate results for 59 other countries, and Georgia has a higher incidence than all but 6 of these, and all but 1 of 13 transition economies
Source: Georgia Poverty Assessment, 2009, World Bank.

29. Health Care is an Important Domestic Policy Issue
Main problems cited by households,
Health care is a major concern for the households. In a recent survey population was asked what they considered as the main problem for their household – predominant majority cited buying medicines and medical care. And seems that situation is getting worse rather than improving.

30. Effect of OOP Health Payments on Household Consumption
High out-of-pocket payments for health may also cause a household to fall below the poverty line – that is, they can be “impoverishing”. If a household has total consumption expenditures (pre-OOP) above the national poverty line, but their total non-medical spending (post-OOP) is below the poverty line, they could be considered to have suffered impoverishment due to OOP for health. Figure 4 shows this graphically based on 2007 data. Households are ranked along the horizontal axis by total consumption. The vertical drip lines represent OOP for health, and the poverty threshold is indicated by the horizontal line. Applying this approach to 2007 household survey data, it has been estimated that an additional 3 percent of Georgian households were poor as a result of OOP for health. Consistent with Georgia’s high reliance on OOP as shown above, this level of poverty impact is notably higher than most other countries either in the region or around the world. Whether this is an accurate way to evaluate the true poverty impact of OOP is a matter for debate, since in reality households are likely to draw on several possible coping mechanisms that would allow for consumption smoothing, such as drawing down savings, borrowing, or selling assets. Thus, a costly illness episode in one period would not necessarily have an immediate and commensurate impact on total consumption in the same period. Nevertheless, the concept can be useful for international comparisons of financial protection.

31. Equity In Financial Access
Indicator
Year
Poorest 20%
Second
Middle
Fourth
Richest 20%
% of acute sickness in last 30 days where no consultation was sought because it was too expensive
2007
21.5
18.7
23.7
15.2
11.3
2010
27.7
21.9
21.6
20.5
7.3
% of consultations where medicines where prescribed but not purchased because it was too expensive
16.4
11.6
12.2
21.7
14.2
11.1
9.4
10.3
% of population needing hospitalization but not hospitalized because it was too expensive
4.7
3.9
3.3
3.4
3.5
1.8
2.3
2.8
2.6
% of population covered by any type of health insurance
18.5
14.8
12.5
14.4
8.6
39.9
31.1
26.6
26.2
% of population in households covered by MIP/MAP
14.3
13.2
8.3
9.3
4.2
39.2
26.8
20.1
16.7
13.1
As it is expected there is a significant inequity across the socio economic groups.

32. Government Tries to Improve Financial Access for Economically Vulnerable Groups
Free hospital benefits among various groups in 2010
Concerned with the situation of the economically vulnerable groups a few years ago the government initiated so called MIP a free health insurance program for the socio-economically vulnerable. It covers a wide range of services with annual cap per patient. The evaluation of the effectiveness of the program shows that it did improve access for the vulnerable groups to the hospital care especially and reduced the spending.
Source: HSUE Survey 2010

33. Impact of Medical Insurance Program for Economically Vulnerable Groups
For outpatient care in Adjara and Tbilisi, and inpatient care in all regions, MIP beneficiaries pay approximately 50 percent less than non-beneficiaries (there is no statistically significant difference for outpatient care in the regions with a cut-off score of 70,000). The survey also found that MIP beneficiaries were more likely to report receiving free or reduced-price care because of insurance, and less likely to report that they could not pay for the costs of care out of their usual income. Together these findings indicate that MIP has made a major contribution to reducing out-of-pocket spending among its beneficiaries, and is therefore achieving one of its key program goals. The survey results also indicated, however, that the program has not had any impact on utilization. This is an important finding, but here we focus on the issue of financial protection and OOP.
The main reason why out-of-pocket spending has not fallen to zero among MIP members is because of drug expenditures. The study was undertaken prior to the recent introduction of an out-patient drug benefit as part of MIP. However, some respondents also reported paying for certain services that are supposed to be covered by MIP, indicating that informal payments may persist and there is scope to improve knowledge of the benefit package.
In 2010, the proportion receiving free service was substantially higher among MIP beneficiaries, at 56%, compared with 31% in the non-MIP beneficiary group. Consequently MIP policyholders were 2.9 times more likely to receive free services from an outpatient care provider then those without MIP policy (χ2 p <0.01). The poorest and those in second quintile were almost also 1.7 times more likely to benefit from free outpatient services than those in the richest quintile (p<0.01).

34. Targeting Performance of MIP
although MIP represents a best-practice example of targeting limited public funds to the poor, the actual targeting performance could be improved (Figure 9). This is in part because the proxy means test used to determine MIP eligibility was originally developed for the TSA program, meaning that it was intended to identify the extreme poor (it is budgeted to cover about 450,000 beneficiaries), rather than to identify a much larger group of beneficiaries as in the case of MIP (which is budgeted to cover over 900,000 individuals). As a result, due to sub-optimal targeting performance, nearly 70 percent of MIP beneficiaries are not in the bottom quintile, and only 28 percent of those who are in the bottom quintile are covered. Another factor is that only percent of the Georgian population has applied for inclusion in the database of socially vulnerable families. A better understanding of why many poor households have not applied may also lead to better coverage of the lowest quintile.

35. Investing in Health Care is Considered top Policy Priority for the Government by Predominant Majority of the Population
Health care is a important domestic policy issue and the government need to pay more attention to it.
Source: Georgia Poverty Assessment, World Bank, April 2009

36. Main Policy Challenges
Increasing the role of the state in financing health care and increasing its strategic purchasing role
Pooling the private resources to ensure better risk coverage, solidarity and cross subsidization among the population
Reducing the out-of-pocket expenditures and increasing the share of pre-paid expenditure in the private spending
Stronger regulation of pharmaceutical sector and reducing the price of medicines
Extending the benefit package to include drug benefits
Improve targeting of Medical Insurance Program for the poor and deepening the coverage
Increasing the awareness of population about their health care benefits