GOCR HEALTH CARE REFORM

UNCLAS SECTION 01 OF 04 PRAGUE 001176

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN ELAB ETRD EZ
SUBJECT: GOCR HEALTH CARE REFORM



1. (U) Summary. On July 7, following up on several health
care reform
proposals by Health Minister Milada Emmerova, the GOCR
officially approved
specific steps and deadlines for reform implementation. As
part of these
health care reforms, the government-run health insurance
company, VZP (the
General Health Insurance Company, will receive CZK 3 billion
(Approximately 126
million USD),while the other 8 semi-privately-run health
insurance companies
would receive CZK 800 million (Approximately 33.7 million
USD). In addition,
the reform package will increase government payments to
health insurance
companies for the health care of several population groups,
including that of
pensioners. VZP has a disproportionately large number of
pensioners in
comparison with that of the other health insurance companies.
The assumption
is that the health care system will benefit by CZK 2.3
billion (Approximately
96.78 million USD) as a result. Emmerova also intends to
provide health care
cost savings through lowering the cost of medicine five to
six percent by
decreasing the margin of profit that drug companies make with
their mark-up on
drugs. The proposed reforms do not include patient
co-payments, and do not sufficiently
address the long term financial consequences of an aging
populatation receiving
free health care. End summary.


Czech Health and Health Care:
--------------


2. (U) Public health expenditures in the CR are among the
highest in the
region. Currently, they make up 91.4% of total health
expenditures, while in
Hungary and Poland they make up 70.2% and 72.4%,
respectively. These figures
are also well above the World Bank,s group average of Europe
and Central Asia
which are $151.8 and 65.6%, and the average of
upper-middle-income countries at
$309.8 and 57.6%. (Note: According to the World Bank,s
current classification
system, the CR is an upper-middle-income country, as are
Poland and Hungary).



3. (U) The Czech health care system operates with nine
insurance companies,
one of which, VZP, is government-owned, while the rest are
semi-private.
Employees and employers both contribute to health insurance
through payroll
taxes, which at 13.5% (in comparison to Poland,s 7.75%) were
already considered
to be relatively high even prior to reform. The increased
coverage by the
government of the several population groups will also mean
that, according to
the Czech labor code, private businesses will also be forced
to increase their
contributions toward their employees, health care insurance.



4. (U) Despite this relatively high tax rate, and the fact
that VZP received
the largest portion of a common pool of money contributed by
all insurers for
their populations over 60, the VZP has a current debt of CZK
10 billion
(Approximately 420.9 million USD). (Note: Each insurer was
contributing
approximately 60% of its income. This money was allocated
according to the
percentage of each insurance company,s population over 60.
This allocation
increased by 15% in 2005. It is supposed to increase by 100%
by 2006.) As
previously stated, with the reform VZP will receive CZK 3
billion
(Approximately 126 million USD),through the GOCR buying its
receivables.
Obviously, this will only alleviate less than one-third of
the VZP,s debt;
however, the GOCR plans to make this a long-term process.
The question then
becomes whether these reforms are sufficient to reform Czech
health care.

Political Background:
--------------



5. (U) The CR has been attempting to reform its health care
system since 1989;
in the past 15 years, there have been 11 health ministers
including Emmerova,
who was appointed in August 2004. Health care is an
extremely sensitive
political issue in the CR, particularly in light of the
upcoming June 2006
parliamentary elections. As such, the government reforms
avoid such unpopular
measures as increases in patient co-payments. (Note: Czech
Deputy Prime
Minister Jahn,s strategy for economic growth supported
co-payments to doctors,
but this, along with other provisions of the strategy, was
rejected by the
labor unions and removed.) As Petr Slama, Deputy Minister of
Health, stated
recently in an interview &co-payments are not on the agenda
now(what we plan to
do is to push the prices of drugs down.8 Besides these cost
issues, the CR also
faces a number of quality concerns, many of which stem from
financial
problems. Among them are a brain drain of doctors and
dentists to wealthier
countries and the inability of hospitals to meet their
patients, medical needs
because insurance companies are behind in their payments,
resulting in
suspension of drug sales to the hospitals. At the end of
July, a dispute arose
between the insurance companies and hospitals, as to whether
the insurance
companies owed hospitals more than they had paid them for a
specific type of
care; the government has announced that the issue will be
resolved after its
holiday, but the hospitals have stated that without payment,
they will have to
make cuts that will affect patients, quality of care.


Management Reform:
--------------


6. (U) Reforms in management, particularly at VZP, continue
to be a major
concern for critics of the health-care system and Emmerova,s
health care
proposal. One of the arguments made is that, with the
reallocation of monies
away from other health insurance companies to VZP, VZP has an
unfair
advantage. Nor do critics think such redistribution will be
sufficient to
reform VZP. Jaromir Gajdacek, who heads the Association of
Health Insurance
Companies CR (SZP CR) recently stated that in order to begin
to solve VZP,s
debt problems, the state,s indexation would have to increase
significantly from
2.3 billion (Approximately 96.78 million USD) or 12 crowns
(Approximately 50
cents) per person to 144 crowns (Approximately 6 dollars) per
person. VZP is
currently undergoing an audit; the ministries that are
involved with the audit
are not in agreement as to when this audit will be finished.
In addition,
charges of a conflict of interest have been leveled here: a
former member of
VZP,s board of directors is involved in the audit. In
addition to this, there
have been charges of corruption leveled against the head of
VZP.


7. (U) According to press reports, the Czech Chamber of
Doctors (CLK) is one
of the sharpest critics of VZP and its management. The
government is examining
making changes to the management of all insurance companies,
(in terms of
appointment and tenure),in addition to expecting insurance
companies to cut
their operational costs by 2.5%. Gajdacek does not appear to
support reforming
how insurance companies are managed in general, even though
SZP CR is critical
of VZP; rather, he, along, with the CLK, are both strongly in
favor of
increasing patient co-payments. The main opposition party,
the ODS also
supports this increase, as do pharmaceuticals. But increased
co-payments have
already been ruled out by the government.

8 . (U) In 2004, the Financial Times reported that,
according to Standard &
Poor,s, the CR, along with several other countries (Japan,
Germany, France, and
Poland) may face credit rating difficulties by the 2030s, as
their debt grows
enormously over the next 45 years (until 2050) without
&decisive measures to
cut state provision for old age.8 The report by Standard &
Poor,s gives
several possible reasons for such difficulties: enormous
growth in life
expectancy, a low birth rate, and large amounts of debt. The
CR faces all of
the above 3 difficulties; the 2004 CR Statistical Office
recently reported that
men,s life expectancy has increased to 72.5 (from 69 in
2003) and women,s has
increased to 79 years (from 77 in 2003). The CR has, at
least until recently,
also faced low population growth. In 2002, the CR,s total
fertility rate was
1.2 children per woman of child-bearing age.


10. (U) Debt is also a relatively new experience for the CR,
but is certainly
present in the current health care system. Standard &
Poor,s conclusions are &
based on a model assuming that governments will not adjust
their fiscal
policies to allow for an increase in the proportion of
pension-age population
and a concomitant fall in the share of workers(Age-related
expenditure is
expected to start rising in the mid-2010s and peak in the
2020s.8 Indeed, they
anticipate that, after Japan, with current spending
continuing as it is, the CR
would have the most debt of the above-listed countries to
deal with.


11. (U) The GOCR has approved several health-care reforms
that may be positive
in nature, including increasing compensation for health
professionals (a move
that CLK supports) in a system where, according to press
reports, &hundreds of
Czech doctors go abroad every month,8 even if only
temporarily, to earn extra
income. (Note: This proposal was not discussed with the
union of health care
workers; in an interview with POLOFF, the head of the union
indicated that they
were not supportive of this proposal, as they believed it is
not affordable.
This seems to be verified by Paroubek,s failing so far to
provide the monies to
raise wages, though he has under his promise, until September
to do so. Some
believe this may actually contribute to the problem as well,
as hospitals and
health insurance companies run up their debts and continue to
postpone payments
to pay the union,s workers, eventually leaving the state to
bail them
out-again.) Other proposals under consideration include
management reform and
cost-cutting by a variety of measures (including by joint
purchases of
medicines for hospitals; CZK 6 billion in savings
(Approximately 252.5 million
USD) are estimated, or even merging all of the insurance
companies into one, as
an attempt to solve the debt and demographic problems of VZP.
The government
has not approved this measure yet, though PM Paroubek
supports it, as does
KDU-CSL (the Christian Democrats) and the KSCM (the Communist
Party). The
major &reforms8 that have already been approved, however,
are unlikely to
change much in the Czech health-care system, at least on a
permanent basis.
Although health insurers support many of the reform measures
taken (that is,
the government buying their debt, indexation of government
payments, the
government paying for a portion of certain hospital beds, as
well as lowering
the medicine margin),the political reasons resulting in the
unwillingness to
increase the patient co-pay will likely make this reform only
a stop-gap
measure in the Czech health-care system, even assuming that
it passes
Parliament. The GOCR does consider these short-term
measures, but as it
acknowledges in its original healthcare proposal, VZP has had
prior financial
support from the state. VZP,s health is of critical
importance to the Czech
health care system because it is the insurance company for
over half of the
Czech population; it was the initial insurance company
established after
Communism, and much of the population remains with it.
Though drug costs are a
legitimate concern with an older population, lowering the
medicine margin and
the reimbursement rates are unlikely to ultimately solve
VZP,s problems.


15. (U) Comment: The International Association of
Pharmaceutical Companies
(MAFS),which includes American pharmaceutical companies, is
unlikely to be
pleased with this reform. While the American Chamber of
Commerce believes the
Czech health care system needs reform to stabilize its
finances, the MAFS,
including American pharmaceutical companies, believes that
the Czech
reimbursement system is already discriminatory in nature,
favoring the local
generic drug producer, Zentiva. Under the Czech
reimbursement system, the
Ministry of Finance determines the maximum price of drugs,
while the Ministry
of Health determines the maximum amount of the drug price
that can be
reimbursed. Reimbursement levels are usually set by the
price of the
lowest-priced (typically generic) drug, though other drugs
may be partly
reimbursed. Patients make up the difference between the
reimbursement level
and the cost of the drug. While maximum price setting is
important,
reimbursement levels are what have increasingly drawn the
pharmaceutical
industry,s anger; lower reimbursement rates naturally favor
lower-cost,
typically generic, drugs, hurting American drug companies,
profits, as will the
new decrease in the medicine margin. There is no indication
that the reform
proposal will alleviate the concerns of the pharmaceutical
companies, and, in
fact, may have the potential to worsen their situation. End
comment.
CABANISS