Identifier
Created
Classification
Origin
07MOSCOW1520
2007-04-05 15:55:00
CONFIDENTIAL//NOFORN
Embassy Moscow
Cable title:  

RUSSIAN DUMA: SPLIT HEALTH MINISTRY IN TWO

Tags:  TBIO ETRD ECON SOCI PGOV PINR RS 
pdf how-to read a cable
VZCZCXYZ0000
OO RUEHWEB

DE RUEHMO #1520/01 0951555
ZNY CCCCC ZZH
O 051555Z APR 07
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC IMMEDIATE 8950
INFO RUEHC/DEPT OF LABOR WASHDC PRIORITY
RUEHPH/CDC ATLANTA GA PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEAUSA/DEPT OF HHS WASHDC PRIORITY
RHEHAAA/WHITE HOUSE WASHDC PRIORITY
C O N F I D E N T I A L MOSCOW 001520 

SIPDIS

SENSITIVE
SIPDIS

DEPARTMENT FOR EUR/RUS AND OES/IHA
HHS FOR OGHA/STEIGER, SAWYER, ESSIET-GIBSON
COMMERCE FOR ITA/EDWARDS
WHITE HOUSE FOR USTR/MOLNAR

E.O. 12958: DECL: 04/04/2017
TAGS: TBIO ETRD ECON SOCI PGOV PINR RS
SUBJECT: RUSSIAN DUMA: SPLIT HEALTH MINISTRY IN TWO

REF: A. MOSCOW 976


B. 06 MOSCOW 12814

C. 06 MOSCOW 13072

Classified By: EST Counselor Daniel J. O'Grady, Reasons 1.4(b,d).

C O N F I D E N T I A L MOSCOW 001520

SIPDIS

SENSITIVE
SIPDIS

DEPARTMENT FOR EUR/RUS AND OES/IHA
HHS FOR OGHA/STEIGER, SAWYER, ESSIET-GIBSON
COMMERCE FOR ITA/EDWARDS
WHITE HOUSE FOR USTR/MOLNAR

E.O. 12958: DECL: 04/04/2017
TAGS: TBIO ETRD ECON SOCI PGOV PINR RS
SUBJECT: RUSSIAN DUMA: SPLIT HEALTH MINISTRY IN TWO

REF: A. MOSCOW 976


B. 06 MOSCOW 12814

C. 06 MOSCOW 13072

Classified By: EST Counselor Daniel J. O'Grady, Reasons 1.4(b,d).


1. (C) SUMMARY: The Duma April 4 unanimously approved a
proposal to divide the Ministry of Health and Social
Development into separate Ministries of Health Care and the
Medical Industry and that of Labor and Social Development.
Duma Deputies stopped short of calling on Minister Zurabov to
resign. Prime Minister Fradkov stated the Government would
consider the proposal to split the Ministry, but President
Putin would ultimately decide whether the structural reform
made sense. The proposal comes in the wake of the supply and
financing problems with the government's free drug benefits
program and other recent corruption scandals at insurance
funds that the Ministry controls (REFTELs). There are
genuine supply disruptions under the drug program, and some
U.S. and foreign firms have not been fully reimbursed for
drugs they supplied in 2006. With theoretically enough money
available from the Ministry of Finance to fully fund the
program, the latest proposal to split the Ministry appears to
be the Duma's response to the considerable public discontent
with how health programs are administered, as well as
election-year politics aimed at appealing to voters who
depend on the health and social programs administered by the
Ministry. END SUMMARY.

Proposed Division of Ministry
--------------


2. (SBU) On April 4 the State Duma unanimously adopted a
proposal to PM Fradkov urging the division of the Ministry of
Health and Social Development (MOHSD) into two separate
cabinet-level ministries: a new Ministry for Health Care and
the Medical Industry and a separate Ministry of Labor and
Social Development. The Duma stopped short of calling for

Health and Social Development Minister Zurabov to resign.
The Duma assessed the Ministry's work as "unsatisfactory,"
particularly in light of the ongoing supply disruptions and
financing problems with the Government's drug benefits
program (REFS A and B). (The program is known as the "DLO"
or the "Additional Drug Supply" in Russian.)


3. (SBU) Duma Deputies clearly believe splitting the Ministry
in two would not only improve management of the DLO, but also
other health and social programs that the ministry
administers, such as social insurance and pension programs.
The Duma called for changes in the ministry's personnel to
strengthen the management of these programs. Deputies
proposed establishing a Government program to stimulate
domestic drug production, given the problems with the DLO and
Russia's dependence on foreign drugs (REF A). They urged
tougher measures against counterfeit drug sales.


4. (SBU) Prime Minister Fradkov was asked about the proposal
to split the Ministry on April 5 while traveling in the
Russian Far East. He observed the Government would certainly
consider the proposal, but that President Putin would make
the ultimate decision. (COMMENT: Not exactly a revelation.
END COMMENT). Some Duma Deputies and political observers
have noted it is not within the Duma's constitutional powers
to make proposals about the fundamental structure of
ministries, or to suggest that individual ministers resign or
be fired.

Unwinding an Unhappy Marriage
--------------


5. (C) Since its creation as a result of administrative
reforms in March 2004, the MOHSD has been unwieldy. Neither
health nor social development bureaucrats were happy with the
merger of the two previously independent Ministries of Health
and of Labor and Social Protection. MOHSD's main
beneficiaries (the chronically sick, pensioners, veterans,
the working poor, and the unemployed) have also often been
dissatisfied with the mismanagement of the DLO, attempts at
pension reform, and monetization of benefits (Reftels). The
MOHSD has been widely seen as unmanageable, with supervision
over six separate health and social agencies and federal
services, and three separate insurance and pension funds.
Recent corruption scandals at insurance funds administered by
the ministry and the management missteps with the DLO program
(Refs A, B) have only confirmed this prevailing view.

Health Minister's Defense Before the Duma
--------------


6. (C) The appearance of the perennially unpopular Minister
Zurabov before the Duma on March 23 to propose solutions to
the DLO problems was pure political theater. One Deputy
called on Zurabov to take his service pistol and shoot
himself, and another asked rhetorically when Zurabov intended
to keep his earlier promises to resign at the first sign of
trouble with the DLO program. A skilled debater, Zurabov
ably defended himself, essentially telling the Duma the issue
of his resignation was a red herring that would not improve
the situation with the DLO program. Instead, he proposed
fully paying off the deficit spending under the program in
2006 and fully funding it in 2007. Zurabov and the United
Russia Party also proposed creating a separately funded
program for those requiring long-term or expensive medicines
(e.g., diabetics, hemophiliacs, and those suffering from
blood cancers or multiple sclerosis),which would cost an
additional 20-25 billion rubles per year.


7. (SBU) Zurabov noted that problems with financing the DLO
originated when more people than expected opted to monetize
their benefits in 2006, and those who remained in the program
overburdened the system by obtaining expensive drugs. Over
the long-term, Zurabov argued that greater funding for
Russia's health care system was necessary, and, in
particular, the Federal Government's funding of the DLO
program would have to be supplemented in future years by
contributions from private insurance companies and regional
governments.

Some U.S. Drug Firms Remain Unpaid for 2006 Sales
-------------- --------------


8. (C) The DLO's financing is having a negative impact on
some U.S. and foreign pharmaceutical companies. A
substantial portion of certain U.S. drug companies' total
sales to Russia in 2006 were under the DLO, and they are
holding significant overdue accounts receivable that the
government has yet to pay. Eli Lilly, one of Russia's
largest suppliers of insulin to diabetics (diabetics comprise
one of the biggest categories of DLO beneficiaries),has been
in months-long negotiations with the GOR and agreed to write
off some of the debt. We believe Lilly is still owed tens of
millions of dollars for drugs supplied under the program, but
the company would not provide us with an approximate dollar
figure. Likewise, Schering Plough, a big supplier of birth
control and anti-cancer drugs under the DLO, is still waiting
to be reimbursed for some of its sales. Janssen-Cilag (a
wholly-owned European subsidiary of Johnson and Johnson) sold
82 percent of its total drugs in Russia through the DLO.


9. (C) Other U.S. firms have little exposure to the financial
difficulties of the program, either because they were more
cautious and chose not to supply drugs through the DLO, or
the mix of their products happened not to fall within the
list of drugs available under the program. Merck suspected
early on that the program was underfunded and chose not to
supply drugs under it in 2006. Pfizer's main drugs were
excluded from the 2006 list of drugs available under the DLO.
Abbott Labs told us their outstanding receivables under the
program are also minor.


10. (C) Some other major foreign firms do face major
exposure. Swiss drugmaker F. Hoffman La Roche supplies heart
medications, anti-cancer drugs, and immuno-suppressors.
According to our sources, it is still owed at least $70
million for 2006 sales. Over 75 percent of Novartis' sales
and nearly half of Sanofi-Aventis' sales in Russia were under
the DLO during 2006.

Comment
--------------


11. (C) Duma Speaker Gryzlov told the press April 5 Zurabov
would ultimately be fired, but would not specify when.
Still, he emphasized that he knows what he is talking about.
Contacts at both Transparency International and Russian
anti-corruption NGO INDEM told us Zurabov's days are indeed
numbered and that the Presidential Administration is waiting
for the perfect election-year moment to make a "supreme
example" of him. Speculation about when Zurabov will be
fired has been circulating for months (REFS A and B). The
proposed split of the ministry may be designed to chasten
Zurabov, or, if implemented, take him down a peg. Human
Rights Ombudsman Lukin's recent annual human rights report
identifies health care as one of the chief sources of
complaints from citizens. The Duma is responding to the
considerable discontent with the way health programs are
being administered.


12. (C) COMMENT (CONT.): Election-year politics may also be
lurking behind all of the public scrutiny of the MOHSD and
the DLO program. While there are still shortages of drugs in
some regions and long waiting lists for many prescriptions to
be filled, there seems little doubt that the Ministry of
Finance could fully pay off the 2006 debts to drug companies,
fully fund the program in 2007, and finance a separate
program for those requiring expensive medicines. The
proposal to split the ministry may be aimed at convincing
voters that the United Russia party is genuinely concerned
about both health and social issues, and is interested in
swaying constituents dependent on MOHSD programs, who may be
leaning towards voting against the governing United Russia
party.
BURNS