healthcare reform in the republic of georgia a healthcare reform roadmap for post semashko countries...

8/9/2019 Healthcare Reform in the Republic of Georgia a Healthcare Reform Roadmap for Post Semashko Countries and Be…

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Copyright © 2014 Bendukidze, Roeder, Tanner, Urushadze

All rights reserved

ISBN: 1497422000

ISBN-13: 978-1497422001


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!"!#CAT#$%&

This 'ook is dedi(ated to all those )ho had to su**er under (entralizedstate+run e-ashko health syste-s and ai-s to li'erate people.s health in

those pla(es )here e-ashko is still in pla(e


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Foreword: The Georgian Model: Market-Based Healthcare as

a Game-Changer in Developing Economies................................ 6

Chapter 1: Initial Situation of the Georgian Health System....10

The Way Out from Soviet Healthcare............................................. 10

Corruption.......................................................................................... 12

Quality of Care .................................................................................. 13

Health Outcomes................................................................................ 13

First Wave of Health Reforms, 1995-2000......................................15

Economic Context.............................................................................. 15

Reform Context.................................................................................. 15

State of Hospitals............................................................................... 18

Need for Reforms............................................................................... 20

Chapter 2: Chronicle of the Georgian Healthcare Reforms....24

Privatization of Public Hospitals...................................................... 25

Hospital Planning .............................................................................. 26

Tender Requirements........................................................................ 26

The War.............................................................................................. 27

Restart of the Reforms...................................................................... 27

Reforming Health Financing............................................................ 28

Mobilizing Resources......................................................................... 28

Health and Insurance Vouchers....................................................... 29

Targeting the Poor............................................................................. 30

Equal Access Clause.......................................................................... 31

Improving Eligibility......................................................................... 31Developing Private Health Insurance ............................................. 32

Consumer Protection: Mediation Services...................................... 33

Fighting Corruption Through Institutional Redesign....................34

Reforming Georgian Pharmaceutical Market ...............................34

Liberalization of the Drug Market................................................... 35

Competition Reduced Pharmacies Margins.................................... 36

Results of the Reforms....................................................................... 36

Chapter 3: Georgia’s Health Reform’s in a European Context


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Healthcare Reform in the Republic of Georgia: From Soviet Debris to Market-

Based Healthcare

Georgia’s Reforms............................................................................. 41

A Model for Reform?........................................................................ 43

Chapter 4: An Interview with Kakha Bendukidze, Former

Georgian Minister for Reform Coordination............................45

About the Authors:...................................................................... 59

Endnotes........................................................................................61


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re(eive the 8*ree9 (are they need As a result, patients are -otived to

look *or )ays to in(entivize do(tors and other providers to treat the-

u(h in(entives usually have a -onetary (hara(ter and are either (alled

8in*or-al pay-ents9 or 8'ri'es9

A very illustrative ea-ple o* ho) epensive 8*ree9 health(are (an

'e(o-e is the Ro-anian health syste- The o* their entire *a-ily.s -onthly in(o-e *or

in*or-al pay-ents during a hospital stay $ne #3A -arket resear(h

survey sho)ed that ?/> o* Ro-anians 'elieve they )on.t re(eive

standard (are i* they don.t 'ri'e the -edi(al sta** 7rivate health(are

providers )ith -odern )ards and superior (are o*ten (harge patients lessthan (orrupt do(tors in 8*ree9 hospitals do As a result, a parallel private

hospital syste- e-erged that o**ers patients -u(h 'etter (are *or the

sa-e a-ount o* -oney or less

"astern "uropean poli(y -akers @ -ost pro-inently in 7oland,

lovakia, and the Cze(h Repu'li( @ have (o-e to understand the

de*i(ien(ies o* govern-ent+run health(are and appre(iate the gro)ing

i-portan(e o* private health(are provision and *unding

The Repu'li( o* eorgia re(ently under)ent one o* the )orld.s -ost

radi(al health re*or-s, all )ithin ust a (ouple o* years The


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Bendukidze, Roeder, Tanner, Urushadze

o* the (ountry.s health ependitures to 'elo) />eorgian hospital eperts esti-ate that pri(es )ent do)n 'y 40> due to

the re*or-s Co-petition and private enterprise (reated a diverse

lands(ape o* hospitals, health -aintenan(e organizations, insuran(e

plans, and *reedo- o* (hoi(e This pluralisti( (o-petitive syste- allo)s

ongoing innovation driven 'y patients. needs The li'eralization o* the

eorgian health syste- attra(ted *oreign investors that didn.t solely

ine(t (apital into the syste- 'ut also 'rought kno)+ho) *ro- a'road

#t.s not ust transitioning e(ono-ies that are -oving to)ards -ore

private health(are )eden and er-any, o*ten seen as de-o(rati(

so(ialist role -odels, have *a(ilitated a huge surge o* private health(are

in the last *e) years A*ter t)o de(ades o* privatization, *or+pro*it

(o-panies o)n al-ost 40> o* er-an hospitals By (ontrast, the

A-eri(an ospital Asso(iation esti-ates that -erely 20> o* hospitals in

the U are *or+pro*it 7rivatization o* hospitals allo)ed signi*i(anti-prove-ents in 5uality o* (are "**i(ien(y gains redu(ed treat-ent

(osts, providing 'etter (are at a lo)er (ost

The sad truth is (ountries that eperi-ent )ith so(ialized -edi(ine o*ten

eperien(e (atastrophi( levels o* (are, high levels o* (orruption, and a

-isallo(ation o* s(ar(e resour(es Ti-e and again, patients )ill try to

opt+out o* those syste-s or pay *or parallel private servi(es #n response,

-any (ountries have started i-ple-enting poli(ies to strengthen the private se(tor, introdu(e -ore *reedo- o* (hoi(e, and allo) (o-petition

The results have 'een a vast i-prove-ent in the availa'ility and 5uality

o* health(are *or (itizens

This 'ook sho)(ases the eperien(es o* t)o leading health(are

re*or-ers *ro- eorgia, *or-er 3inister o* "(ono-i(s :akha

Bendukidze and *or-er 3inister o* ealth Andria Urushadze 3i(hael

! Tanner *ro- the Cato #nstitute in


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and 'eyond


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%ha(er 1: Iniial Si,aion o. he Georgian

"ealh S+!e$

*+ /ndrew r,!hade

The a+ , .ro$ So'ie "ealh#are

$ver the last *e) de(ades, the eorgian health syste- has eperien(edseveral di**erent stages o* trans*or-ation eorgia 'e(a-e an

independent nation )ith the dissolution o* the oviet Union in 11, 'utun*ortunately still has the roots o* -any pro'le-s o* the past

Be*ore 11, eorgia.s health syste- operated on a oviet -odel, )here(are )as supposedly *ree and universal Un*ortunately, -any eorgianstoday *oster *alse nostalgia *or the supposedly s)eet oviet ti-es,

'elieving that health(are syste- )as )ell+*unded at no (harge to patients, provided e5ual opportunity *or treat-ent, and -aintained high-oral standards

6or -any years, oviet propaganda tru-peted the supposed superiorityo* so(ialized -edi(ine and the inevita'ility o* its triu-ph over the(apitalist order Today, a -ore a((urate analysis o* health data illustratesthat the stagnation o* eorgia.s e(ono-y and pro'le-s )ith its healthse(tor had started long 'e*ore its independen(e in 11

oviet sy-pathizers )ill (lai- that health(are )as a-ong -ain poli(y

priorities o* the Union o* oviet o(ialist Repu'li(s UR, 'ut thereality is that the health syste- )as deteriorating and in(reasinglysu**ered *ro- la(k o* *unds 'e*ore 11 6or -any years, the UR )asthe only industrialized (ountry )here the per(entage o* gross do-esti(

produ(t !7 'eing spent on the health o* its people de(reased

!uring the period o* stagnation under eneral e(retary DeonidBrezhnev.s regi-e, the health syste- )as plagued 'y a series o*in(reasingly serious pro'le-s that espe(ially (a-e to attention during the

perestroika restru(turing period o* the late 1?0s #n the *inal years o* theUR, national health(are ependitures )ere -erely E> to 4> o* !7


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Based Healthcare

ependitures as a share o* the national 'udget *ell *ro- ?> in 1// to;;> in 1;/, then *ro- /2> in 1=? to 4E> in 1?;1 A*ter theUR.s dis'and-ent, the ne)ly independent satellite states inherited-edi(al (are syste-s that )ere in a (hroni( state o* disarray

Be(ause o* (ontinual under*unding, eorgia.s health(are syste- slippedinto (riti(al (ondition and (ontinued to deteriorate !espite the *a(t thatover hal* o* the health *a(ilities had 'een 'uilt 'e*ore 140, thegovern-ent allo(ated *unds to)ards the (onstru(tion o* ne) *a(ilitiesinstead o* upgrading or even -aintaining eisting ones #n 1??, 11/*a(ilities )ere under (onstru(tion, -ost o* )hi(h re-ain un*inishedtoday

The la(k o* ne(essary -edi(al e5uip-ent and -isuse o* hu-an resour(esalso 'e(a-e an a(ute pro'le- in the years 'e*ore re*or- eorgia hadover 120,000 persons e-ployed in the health se(tor The density o*do(tors )as one o* the highest in the )orld at 1 physi(ian per 1=inha'itants Undertrained, under+utilized, and inade5uately -anagedhealth(are pro*essionals greatly inhi'ited the e**i(ien(y and e**e(tivenesso* eorgia.s health(are servi(es2

The notion o* e5uity in health is (losely linked )ith the idea o* so(ial usti(e grounded in redistri'utionist prin(iplesE A((ording to ovietlegislation, every (itizen had e5ual a((ess to treat-ent #n a(tuality, as-u(h as hal* o* (entral health 'udget o* the UR )as allo(ated to*inan(e a so+(alled 8*ourth depart-ent9 o* the ealth 3inistry that

provided (are e(lusively to politi(al elites )ho a((ounted *or less than1> o* the population The re-aining > had to survive in a healthsyste- that -erely spent 1/> to 2> o* !7 @ a *ra(tion o* the total E

o* /> o* !7 in total health spending over the last years o* so(ialist-edi(ine

"ven in 2001, *unding allo(ations *or the health *a(ilities o* eorgian3inistry o* #nternal A**airs )as al-ost three ti-es -ore than *or general

pu'li( (lini(s The 'ureau re(eived *unds in a 'loated, 'udget+ite- 'asis, ust like they did in the UR A((ording to the appli(a'le rules andregulations, these *unds (ould 'e utilized *or the needs o* -inistry

personnel and, in so-e (ases, their *a-ily -e-'ers as )ell

4

A((ording to the e(ono-ist Furi 3altsev govern-ent 'ureau(rats and


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"ven in post+soviet eorgia, these pra(ti(es )ere largely etended and partly get legiti-ization

,ali+ o. %are

As i* the 'ureau(rati( trou'les )ith the oviet health(are syste- )eren.t 'ad enough, the UR.s approa(h to -edi(ine )as very di**erent than over the previous E0


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o((urring in the *irst three days o* li*e The -aternal -ortality rate33R )as esti-ated to 'e -ore than *our ti-es that in


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Fir! a'e o. "ealh e.or$!6 199-2000

A*ter years o* hostilities and so(ial unrest, the parlia-entary ele(tions in14 and adoption o* a ne) (onstitution (reated politi(al and e(ono-i(

sta'ility #n response to the harsh *inan(ial (risis, in 1/ govern-entintrodu(ed ne) health re*or-s, in(luding so(ial insuran(e, user *ees, andne) provider pay-ents The re*or-s largely (on(entrated on generatingrevenue to the desperately under*unded syste-

3aor re*or-s in(luded a -ove to -ore pluralisti( syste-s o* 'oth*unding and delivery 7ri-ary health (are )as strengthened, privatized,and hospitals )ere strea-lined, introdu(ing ne) arrange-ents on

pur(hasing and rei-'urse-ent o* health servi(es o(ial servi(es andhealth(are )ere 'rought (loser together through the -erger o* the3inistries o* ealth and o(ial


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*unding As su(h, all the state health progra-s )ere severelyunder*unded on(e again

#n order to respond to the general 'udget short*alls and ine(t additionalresour(es in the health syste-, the eorgian govern-ent instituted aealth+7rogra- *ra-ed health syste-, (o+*unded 'y a so(ial insuran(e-odel The 'urden o* the ta )as to 'e shared 'y e-ployers ande-ployees E> H1> o(ial insuran(e de*i(its )ere supposed to 'e(overed 'y trans*ers *ro- general govern-ent revenues 3uni(ipalhealth *unds re(eived additional revenues *ro- (ity 'udgetsContri'utions to the -uni(ipal health *unds )ere (al(ulated 'ased on a*lat rate per person, depending on the nu-'er o* people living in the (ity,

'ut they had to 'e at least 2/ el1E Un*ortunately, )hen the -aority o*the population is une-ployed or sel*+e-ployed and the revenuead-inistration is (orrupt, ta (olle(tion is nearly i-possi'le

7u'li( health ependitures as a per(entage o* !7 dropped su'stantially*ro- ust over 4> in 11 to 0=0> in 1?, and *urther do)n to 0/>in 1 There )ere si-ilarly lo) real allo(ations to the health 'udget*ro- 1/ to 1? $nly //> o* the health se(tor 'udget )as ee(uted

in 1=

14

#n 2000, approi-ately I11 per person )as 'udgeted *orannual state spending on health, although -u(h less )as re(eived than pledged The *unds allo(ated to on(ologi(al servi(es in 1 (overedonly a'out =00 patients, )hen around 2100 patients )ere epe(ted tore5uire su(h servi(es1/

Do) o**i(ial rei-'urse-ent rates and una)areness o* o**i(ial hospital(osts (reated an environ-ent (ondu(tive to shi*ting the -aor part o* thereal hospital (osts onto patients, resulting in a high level o* in*or-al

pay-ents yet again

A((ording to the


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Based Healthcare

7u'li( vs 7rivate ealth "penditures in the C#+= in 1?&

1;

hi*ting the -aor *inan(ial 'urden o* health ependiture to)ards privatehouseholds (aused a signi*i(ant *all in a**orda'ility and utilization o*health servi(es $nly 4;> o* those )ho )ere si(k sought pro*essionaltreat-ent, and 20> o* those that sel*+treated the-selves did so 'e(ause

they (ould not a**ord pro*essional treat-ent1=

#n the autu-n o* 2001, 5uantitative (ross+se(tional surveys )ere(ondu(ted in eight *or-er UR satellites to assess the pro'a'ility o*attending a health pro*essional the previous year eorgia had the

poorest a((ess to health(are in a (o-parative assess-ent o* eight *or-eroviet repu'li(s1? #n eorgia, al-ost ==/> o* individuals reported )ereuna'le to a**ord or attend a skilled health )orker and paid the highest

per(entage o* in*or-al pay-ents during (onsultations

#n *a(t, in*or-al pay-ents to do(tors and nurses )ere ingrained in the-edi(al tradition o* *or-er UR (ountries, dating 'a(k to (o--unistti-es #t is not until the last de(ade that this pra(ti(e has largely endedBut they do not see- to have 'een a -atter a (on(ern until the lastde(ade The highest pro'a'ility o* -aking an out+o*+po(ket pay-ent or agi*t )as in eorgia at ;/>

7er(entage o* 7atients 7aying #n*or-ally or 3aking i*t during 3ostRe(ent Consultation 2001&


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1

The sa-e study sho)ed that *inan(ing 'arriers a**e(ted the patterns o*ad-issions to hospitals The annual nu-'er o* ad-issions and averagelength o* stay de(reased dra-ati(ally over a short period o* ti-e, *ro-1/E in 11 to ? *or a(ute (are 'eds in 1= Conse5uently, the(apa(ity o* the hospital net)ork (reated in the (ountry during the ovietti-es 'e(a-e highly e(essive $((upan(y rates 'e(a-e alar-ingly lo)

at 2=;>

A study a-ongst 41 hospitals in 1 revealed that -ost patients )erea)are o* the o**i(ial servi(e rates in hospitals 'e(ause the -ain part o*

pay-ents )as in*or-al at a'out ;0> #n *a(t, only 20> o* eorgianskne) that state *und partially paid *or their health(are20

Sae o. "o!(ial!

eorgia inherited a 'ulky and o'solete health in*rastru(ture a*ter the(ollapse o* the oviet Union The need *or strea-lining hospitals ineorgia )as o'vious The highly ine**i(ient, resour(e+intensive -odel*orged 'y oviet 'ureau(rats like %ikolai e-ashko )as too rigid tosustain in a -arket+'ased e(ono-y

Co--unist leaders -easured -edi(al a(hieve-ents 'y the nu-'er o* 'eds and personnel As a result, an e(essive nu-'er o* 'eds and-edi(al sta** )ere (o--onpla(e 7rovider pay-ents )ere also 'ased oninputs rather than health status or out(o-es


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Based Healthcare

alongside poorly trained generalists in the pri-ary (are setting 3edi(al*a(ilities )ere all pu'li(ly o)ned There )ere no in(entives *ore**i(ien(y, 5uality o* (are, or responsiveness to patients #n a highly(entralized syste-, -anagerial autono-y and -anage-ent skills )ere

li-ited and health personnel )ere narro)ly trained

The nu-'er o* hospital 'eds and sta** dee-ed ne(essary *or a lo(al population )as relatively high (o-pared to a*ter the *irst 10years o* independen(e, the nu-'er o* hospitals per 100,000 inha'itants)as still a'out t)i(e that o* the "uropean Union

#n T'ilisi, there )ere al-ost 11,000 'eds in /1 hospitals serving a population o* 12? -illion A si-ilarly sized population (overed 'y anA-eri(an health(are plan )ould re5uire only E,000 'eds !espite thesurplus o* 'eds, the -aority o* eorgian -edi(al *a(ilities )ere una'leto provide good 5uality o* (are The 'uildings and stru(tures )ere -ostlydepre(iated and 'adly suited *or -edi(al purposes

"ven as late as 200=, eorgia had one o* the lo)est a(ute (are hospitalad-ission rates in the


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average o* ;/ days and (onsidera'ly lo)er than the 200= C# average o*11 days22

Do) utilization rates, signi*i(ant e(ess o* -edi(al personnel, ands(ar(ity o* *inan(ial resour(es to support the in*lated in*rastru(ture (alled*or i--ediate and radi(al a(tions *or restru(turing o* the -edi(al syste-

A((ording to the T# eorgia report on eorgian ospital e(tor 2012the -ost *re5uently -entioned pro'le-s prior to privatization )ere&

• $utdated in*rastru(ture

• A non+(o-petitive environ-ent• #nade5ua(y and lo) 5uality o* servi(es

• , the only plausi'le strategy )asli5uidating e(ess 'eds 'y 4/+/0> and opti-izing the nu-'er andlo(ation o* -edi(al *a(ilities

6ro- 1? to 2000, several e**orts )ere to strea-line the nu-'er o*(lini(s o)ever, it )as naJve to think that su(h re*or-s )ould 'ei--ediately e**e(tive (onsidering (orruption )as deeply rooted in the

syste- and the -ain stakeholders )ere uninterested in (hanging thesituation

Need .or e.or$!

The need *or re*or-s in the early 2000s )as o'vious The health status o*the population during the 10 years o* independen(e had severely)orsened eorgia )as one o* the *e) (ountries in the C# )here thei-portant 3illenniu- !evelop-ent oals o* redu(ing early (hildhood

-ortality and -aternal -ortality did not ehi'it a positive trend


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Based Healthcare

The o**i(ial national *igure *or the population average is =;1 years o*li*e epe(tan(y as o* 2001 @ =?= years i* *e-ale and =E/ years i* -aleThe di**eren(e 'et)een 24

Bet)een 10 and 2002, eorgia.s 33R in(reased 'y al-ost ?0>, peaking in 1= A*ter that year, the rate *ell 'y 22> until 2002 Toa(hieve its 3illenniu- !evelop-ent oal 3! in 201/, eorgia.s33R )ould have to *all another ?;> a((ording to the


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The preli-inary -atri(es sho)ed national spending o* E12 -illion "Din 1=, ?=> o* )hi(h (onsisted o* out+o*+po(ket spending $ut+o*+

po(ket spending in(luded (ost+sharing *or govern-ent progra-s, dire(t pay-ents *or servi(es not (overed 'y the govern-ent.s progra-s, and

in*or-al pay-ents de-anded 'y providers *or servi(es (overed 'ygovern-ent progra-s

The results o* a 2000 survey 'y the tate !epart-ent *or tatisti(s hassho)n around ;/> o* -edi(al (are in eorgia is either sel*+treat-ent or

provided *ree+o*+(harge *ro- relatives or neigh'orhood do(tors E> ise-ergen(y outpatient (are, 14> is regular outpatient (are, and /=> isinpatient (are The private se(tor a((ounts *or 104> The volu-e o*

servi(es provided 'y the state is rather li-ited, e5uating to 24;>

#n eorgia o* those )ho )ere hospitalized, the poor paid =0> o* their-onthly household ependiture on the treat-ent episode and the non+

poor paid ;0> 40> o* the households in the poorest 5uintile havereported having to 'orro) *unds or sell their property to *inan(e healthependitures

#n short, a great ine5uality o* health in(o-es arose in the 10s Do)+

in(o-e individuals )ere eposed to unreasona'le levels o* -or'idityand -ortality, as seen in the ta'le 'elo)

eorgia had the lo)est level o* health servi(e utilization in the "uropeand Central Asia Region )ith less than t)o outpatient visits per (apitaand *ive inpatient visits per 100 people Being ill in(reased the

pro'a'ility o* 'e(o-ing poor, as 10> -ore individuals *ell 'elo) the poverty line a*ter in(urring hospitalization ependiture

A*ter the *ailure o* the *irst )ave o* health re*or-s, eorgia.s poorly-anaged health syste- )as in a (ondition o* severe (ollapse 7u'li(enthusias- *or (hange in the health syste- )as repla(ed 'ydisillusion-ent

Georgian "ealh ro.ile 2002

• Maernal $orali+ rae! in#rea!ed *+ a((roi$ael+ 4 *eween

1990 and 1997


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Based Healthcare

• &e#lining li.e e(e#an#+

• In#rea!ed in.an $orali+ .ro$ 75< in 1980 o 2051 in 2002

• In#rea!ed $aernal $orali+ .ro$ 3,ali.ied $edi#al (er!onnel6 re#ei'ing wage! o. ,(

o 20 G)A$onh in 2003 ?C10@ and large de(enden#e on in.or$al

(a+$en!


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%ha(er 2: %hroni#le o. he Georgian

"ealh#are e.or$!

*+ /ndrew r,!hade

To paraphrase ra** Tolstoy, every health syste- is unhealthy in its o)n)ay "ven )hen di**erent health syste-s share the sa-e pro'le-s ege5uity, e**i(ien(y, 5uality, sa*ety, e**e(tiveness o* (are, ea(h (ountry hasits o)n solution 'ased on uni5ue so(ial, e(ono-i(, politi(al, and (ultural

'a(kgrounds

Be*ore 200E, eorgia.s health syste- )ent through a nu-'er o* )ell+intentioned 'ut poorly i-ple-ented re*or-s They see-ed *ine in theory,

'ut not so -u(h in pra(ti(e The sad reality is that the early years o*eorgia.s independen(e *ro- the UR in the 10s *ailed to i-provethe poor health out(o-es o* the oviet era

!espite the plethora o* eviden(e de-onstrating so(ialized -edi(ine.sills, opponents o* re*or- stu''ornly (ontinued to -ake anti+-arketargu-ents 87rivatization o* health(are is not ust )rong,9 they )ouldsay, 8it.s inhu-ane and i--oral 7eople.s health should not 'e su'e(tto the pro*it -otive9 6ortunately, poli(y -akers sa) through the)eakness o* this argu-ent


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Based Healthcare

the (ost o* the health syste-.s 'ureau(ra(y and -arginalized (orruptionin the health se(tor A sta'le regulatory environ-ent has repla(edo'solete li(ensing rules

oon, the govern-ent 'egan tightening its 'elt, de(reasing ad-inistrative(osts sharply 3ost state agen(ies )ere -erged or li5uidated, de(reasing-inisterial sta** 'y ;0> to -ini-ize 'ureau(ra(y All health agen(ies-oved into one 'uilding, *reeing up thousands o* 5uadrati( -eters o*state+o)ned o**i(es in the (apital, T'ilisi, *or (o--er(ial use

The ne) health(are syste- re*le(ts the nu-erous re-arka'le e(ono-i(and politi(al (hanges arising out o* the Rose Revolution The health

se(tor.s progress )as part o* the (ountry.s 'old li'eral re*or-s that *reedit *ro- govern-ent -onopoly and allo)ed it to 'ene*it *ro- pu'li(N

private partnerships #ndeed, the health se(tor.s su((ess*ul trans*or-ation)as ust one o* several su((ess*ul re*or-s the eorgian govern-enti-ple-ented to (reate a ne) so(ial+e(ono-i( order o* prosperous -arket(o-petition

ri'aiaion o. ,*li# "o!(ial!

The eorgian govern-ent.s 8100 %e) ospitals9 plan o* Oanuary 200=had the e**e(t o* a 'o-' eplosion in (hanging the health lands(ape The

proposed solution o* (o-pletely privatizing the hospital se(tor )as trulysho(k therapy *or the (ountry.s nearly (ollapsed hospital in*rastru(tureA*ter years o* inde(isiveness, the govern-ent in*or-ed stakeholders thatit )as (o--itted to (reating 'etter hospital servi(es

The ospital Re*or- 7lan, prepared 'y tate 3inister o* Re*or-sCoordination :akha Bendukidze.s o**i(e )as short and (lear&

We have an excessive and obsolete medical infrastructure, aninefficient financing model, and an inadequate regulatory

system. Doctor – Patient - Society - all are dissatisfied with the

existing situation. here is !ublic consensus on necessity of

radical change. "## new hos!itals countrywide, im!roved access

to high quality health services, im!roved health of the

!o!ulation that we are ex!ecting after the $ years of

im!lementation.%&

'r. (endu)id*e !ro!osed a !lan to fundamentally resha!e


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lead to increased com!etition, increased !atient choice, and

corres!ondingly the !rovision of higher quality healthcare

services.%

"o!(ial lanning#n Oanuary 200=, the eorgian govern-ent approved the ospital!evelop-ent 3aster 7lan The plan (alled *or the (o-plete repla(e-ento* the eisting hospital in*rastru(ture )ithin a three+year period *ro-200= to 200 'y trans*erring *ull o)nership rights *ro- the state to the

private se(tor A((ording to the ter-s o* the (urrent plan, privateinvestors )ere to supply eorgia 100 ne) hospitals and =,?00 ne) 'eds4,1?/ in T'ilisi and E,;1/ in the regions

This plan -arked the *irst ti-e the govern-ent not ust announ(ed the 'eginning o* the re*or-s 'ut also presented *inan(ial and te(hni(aldetails o* its i-ple-entation An esti-ated 200 -illion U! )ereepe(ted to 'e invested in hospital real estate during *irst t)o years andup to =00 -illion U! in the *ollo)ing *ive The total esti-atedinvest-ent needed *or a *ull re*ur'ish-ent o* the hospital se(tor )as 1

'illion U!, )hi(h a-ounted to al-ost 10> o* eorgia.s !7 in 200=

The -aster plan deter-ined eorgia.s total hospital (apa(ity and theopti-al lo(ation *or inpatient *a(ilities 'ased on geographi( a((essi'ilityin a 4/+-inute radius %e) standards *or li(ensing hospitals )ere alsoapproved 'y the govern-ent2= "isting o'solete per-ission rules )ererepla(ed )ith a predi(ta'le regulation environ-ent supportive o* pu'li(heath The nu-'er o* 'usiness a(tivities su'e(t to li(ensing and per-itregi-es )as redu(ed 'y ?4>2?

Tender e>,ire$en!ospitals )ere epe(ted to di**er in size, )ith 1/ to 2/ 'eds in theRayons2 and over 100 -ore in regional (enters and 'ig (ities The-ini-u- re5uire-ents )ere /0 s5uare -eters per 'ed in s-all hospitalsand =/ s5uare -eters per 'ed in larger hospitals These -ini-u-re5uire-ents ai-ed to avoid e(essive invest-ents in hospital se(tor andto ensure (ost sta'ility o* the privatized syste-

3ost i-portantly, the govern-ent did not ai- to *inan(ially 'ene*it *ro-

the privatization o* the hospital se(tor #nvestors took over eistinghospitals in T'ilisi and the regional (enters to (reate a -ini-u- nu-'er


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Based Healthcare

-edi(al servi(es *or no less than seven years A*ter -eeting theo'ligations o* the tender agree-ent, investors (ould utilize any unused

property and the 'uildings o* the old hospital *or (o--er(ial purposes

The arThe RussianNeorgian


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e.or$ing "ealh Finan#ing

#n the early 2000s, eorgia.s health syste- )as on the verge o* (ollapse*or the se(ond ti-e in ten years #n -any (ases, do(tors have had to ask

patients to 'ring their o)n -edi(al supplies )ith the- 'e(ause they didnot have su**i(ient *unds to resto(k The salaries o* -edi(al sta** )ere*rozen, in(luding pensions and other so(ial pay-ents, 'e(ause o*e(ono-i( stagnation and a gro)ing 'udget de*i(it A((ording to data 'y

the %ational ealth(are Asso(iation, eorgia.s per(entage o* privatespending as a share o* total health ependitures gre) *ro- ?4> to ??>*ro- 2001 to 200E As seen in the ta'le 'elo), (entral 'udget allo(ationsas the per(entage o* total health spending de(reased *ro- ;4> in 2002 to4> in 200E 7rivate pay-ent -e(hanis-s )ere too )eak to play any(onsidera'le role in the health syste- The private insuran(e -arketre-ained undeveloped and did not (ontri'ute signi*i(antly to health(areependitures

Mo*iliing e!o,r#e!

The ter-ination o* the so(ial insuran(e ta )as the *irst step in the (haino* health *unding re*or-s The payroll ta (overed less than / o* totalhealth ependitures, as health(are )as predo-inantly *unded 'y out+o*+

po(ket pay-entsigh une-ploy-ent and lo) )ages, (oupled )ith lo) ta rates, resultedin a thin revenue 'ase, parti(ularly sin(e a large proportion o* the

population )as involved in in*or-al a(tivities These *a(tors )ere(atalyzed *urther 'y prevalent (orruption in the pu'li( se(tor and a )eakd i i t ti it t * t ll ti $ l *i *t it


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Based Healthcare

#n 200/, govern-ent (ontri'utions to -edi(al insuran(e )ere re-ovedaltogether along )ith a general overhaul o* the ta (ode To i-prove its

'usiness (li-ate and en(ourage invest-ent, eorgia drasti(ally redu(edthe nu-'er o* taes (olle(ted Today, there are only si taes, giving

eorgia the *ourth lo)est ta 'urden in the )orld

The govern-ent.s su((ess in (o-'ating (orruption and en(ouraginge(ono-i( gro)th 5ui(kly produ(ed results The stagnation in health*inan(ing and delays o* pu'li( pay-ents that plagued the (ountry *oryears soon 'e(a-e history

tarting in 2004, the govern-ent 'egan dra-ati(ally in(reasing its health

se(tor spending, though it re-ained lo) as a per(entage o* !7(o-pared to other developed (ountries #n 200E, pu'li( spending onhealth (onstituted ust 0;> o* !7 By 2010, the *igure rea(hed 1?>Total per (apita health ependiture in(reased *ro- =4 U! in 200E to2/; U! in 200E1

"ealh and In!,ran#e Do,#her!

$n Oune 2, 200=, the 7arlia-ent o* eorgia -ade -ore -aor re*or-s

'y introdu(ing vou(hers as an instru-ent to *und individual healthservi(es Kou(her+'ased *inan(ing su'stituted state pur(hasing as the pri-ary instru-ent 'y )hi(h individuals a((ess govern-ent+*inan(edhealth(are

The health vou(her )as an ear-arked a((ount tied to ea(h (itizen to pur(hase entitled health servi(es either online or in person The la)de*ined the -ain prin(iples and (hara(teristi(s o* vou(her+'ased*inan(ing as *ollo)s&


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• 7ersonalization

Do,#her *ene.i#iarie! #an *e a (er!on or a gro,( o. (er!on!

!,#h a! a .a$il+5

• 6reedo- o* (hoi(eDo,#her *ene.i#iarie! ha'e he righ o #hoo!e a $edi#al

!er'i#e !,((lier or in!,ran#e #o$(an+

• %ondis(ri-ination

Do,#her *ene.i#iarie! ha'e he righ o o*ain $edi#al

in!,ran#e !er'i#e wiho, di!#ri$inaion *a!ed on (roe#ed

#la!!e! !,#h a! wel.are6 age6 or healh !a,!5

Targeing he oorThe de**i(ien(y o* pu'li( *unds and ine**i(ien(ies in ad-inistrationrendered state health progra-s ine**e(tive at a(hieving its -ain o'e(tiveo* se(uring patients *ro- (atastrophi( health(are (osts !ue to)idespread a((eptan(e o* illegal pay-ents, poor *a-ilies su**ered -u(h-ore than others that )ere 'etter o**#n 200;, the govern-ent introdu(ed a nu-'er o* health *inan(ingre*or-s to rea(h the poor 6irst, a proy -eans test )as esta'lished to

target pu'li( health su'sidies *or the neediest e(ondly, traditionalsupply+side su'sidies that *inan(ed the pu'li( health(are net)ork )eretrans*or-ed into de-and+side su'sidies that lo)er individual insuran(e

pre-iu-s *or the vulnera'le population Thirdly, health servi(e delivery)as (ontra(ted out to the private se(tor in the spirit o* privatization

The *irst 'ene*i(iaries o* *ree insuran(e vou(hers )ere (hosen 'ased on)el*are s(ores derived *ro- the proy -eans test The develop-ent o*target so(ial assistan(e and -onetization o* so(ial 'ene*its )as the

produ(t o* so(ial )el*are re*or-s the eorgian govern-ent hadintrodu(ed 'et)een 2004 and 200;E2 #ndeed, these re*or-s )ere part o*a larger push to alleviate poverty through )el*are re*or- (alled theovern-ent "(ono-i( !evelop-ent and 7overty Redu(tion 7rogra-

#n Ouly 200=, the eorgian 7ri-e 3inister signed a de(ree setting(onditions o* insuran(e vou(hers *or (itizens 'elo) the poverty line inT'ilisi and #-eretiEE This de(ree served as a starting point *or thegovern-ent to i-prove *inan(ial a((ess to health servi(es and prote(t

*a-ilies under poverty line *ro- health+related *inan(ial risks

U d d h 1?0 000 ' *i i i * d d h l h


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Based Healthcare

purpose o* the pilot progra- )as to test the appropriateness andad-inistrative -e(hanis-s o* insuran(e (overage 'e*ore laun(hing the

progra- a(ross the (ountry

Any insurer )ith a li(ense )ith the e(eption o* li*e insurers (ould parti(ipate in these progra-s #n order to do so, an insuran(e (o-panyhad to -ake an o**i(ial state-ent that it )ould a(t in a((ordan(e )ith thegovern-ent resolution

The govern-ent resolution de*ined the entry pro(edure andresponsi'ilities o* insuran(e organizations to parti(ipate in the progra-This )as done to -itigate the (o--on risks health syste-s eperien(e in(olla'orating )ith *or+pro*it insuran(e (o-panies

)>,al /##e!! %la,!e

Under eorgian la), insuran(e organizations have to ensure 'ene*i(iaries e5ual a((essi'ility to insuran(e )ithout any dis(ri-ination#t is prohi'ited *or insurers to re*use issuing insuran(e to the 'ene*i(iary*or any reason, to re*use prolonging an insuran(e (ontra(t *or any reason,to ter-inate a poli(y during an (ontra(t ter-, and to re*use to *ul*ill itso'ligations

#nsuran(e organizations (annot add any additional pre-iu-s or other pay-ents in the insuran(e (ontra(t period #nsurers are not allo)ed to provide poli(yholders )ith less (onditions than those set 'y this de(ree, 'ut are *ree to o**er -ore

Thanks to the re*or-s, *or-erly vague pro-ises o* govern-ent health progra-s )ere repla(ed )ith (learly de*ined regulations governing )hatis (overed and )hat is not To ensure *air *unding, the insuran(e

pre-iu- )as (al(ulated 'ased on the re(o--endations o* the eorgian

A(tuarial Asso(iationThe nu-'er o* 'ene*i(iaries (overed 'y govern-ent+provided healthinsuran(e )as al-ost 00,000 in 2010 Thanks to health re*or- ineorgia, a((ess to essential health(are servi(es *or vulnera'le

populations has signi*i(antly i-proved

I$(ro'ing )ligi*ili+

6ro- 200= to 2011, state+*unded health insuran(e (overage epanded to

*a-ilies o* #nternally !ispla(ed 7ersons, pu'li( s(hool tea(hers, poli(e-en, and soldiers


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retirees, university students, (hildren under si, and under 1? )ithdisa'ilities Co-'ined )ith the population that )as already insured, thetotal share o* eorgians (overed 'y state+*unded insuran(e a((ounted *or/0> the population The share o* pre+paid servi(es in health(are gre)

*ro- /> to 4/>E/

&e'elo(ing ri'ae "ealh In!,ran#e

The develop-ent o* state+*unded insuran(e 'rought ne) (hallenges andopportunities to the eorgian insuran(e industry ealth insuran(e

'e(a-e the *astest gro)ing line o* 'usiness 7rior to 200;, private healthinsuran(e only played a -arginal role in the health(are syste- 3erely40,000 eorgians had private health insuran(e, -ost o* )hi(h )ere

enrolled in group insuran(e poli(ies#n 200, the so+(alled 8Cheap / Dari #nsuran(e9 progra- )as introdu(edand su'sidized 'y the govern-ent *or the population not (overed 'y thestate insuran(e progra- The progra- ai-ed to 8i-prove the *inan(iala((essi'ility o* health servi(es to eorgian (itizens 'y in(reasing theirenroll-ent in a voluntary health insuran(e9E; #t (overed the (osts o*urgent (are in the (ase o* a((idents, /0> o* urgent non+a((ident inpatient(are (osts, urgent outpatient (are, unli-ited visits to a pri-ary health(are

physi(ian, and li-ited la'oratory and diagnosti( tests at the 7C level!rugs )ere not in(luded The annual pre-iu- )as ;0 "DE=, )ith t)o+thirds or 40 "D *unded 'y the govern-ent and one+third 'y theindividual Citizens and residents o* eorgia 'et)een the ages o* threeand ;/ )ere eligi'le to parti(ipate The govern-ent epe(ted thatE00,000 to /00,000 people )ould sign up *or the progra- #n reality,-erely 122,000 people @ E> o* population @ pur(hased the insuran(e

produ(t The progra- proved to 'e largely unappealing, -ainly due to poor (overage and )idespread distrust o* the insuran(e industry

6ortunately, this proved to 'e a (han(e *or private insurers to pilotindividual insuran(e plans

6ro- 200 to 2012, private health insuran(e 'e(a-e one o* the -ostdyna-i( -arkets $ver that ti-e period, insuran(e enroll-ent )itnessedan in(rease o* (overage *ro- 40,000 to 4/0,000


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Based Healthcare

%on!,$er roe#ion: Mediaion Ser'i#e!

The trans*er o* *inan(ing health(are through private insuran(e re5uiredgovern-ent regulators to -onitor the per*or-an(e o* private insuran(e(o-panies and ensure the prote(tion o* pu'li( interests

A rapid s)it(h *ro- traditional state+ad-inistered so(ial health progra-sto a private insuran(e -odel (ould have su'stantially in(reased thenu-'er o* (lai- disputes iven lo) insuran(e litera(y a-ong the

population, -any (on*li(ts arose *ro- (on*usion a'out poli(ies.language 3oreover, 'rining these (lai-s to (ourt (an 'e (ostly andti-e+(onsu-ing, parti(ularly those 'elo) the poverty line To address

these issues, the govern-ent esta'lished a -ediation servi(e and (all(enter to respond to (usto-er 5uestions 'eginning in 3ay 200?

#n 2012, the -ediation servi(e 33 )as esta'lished as a disputeresolution 'ody 'y the 3inistry o* Da'or, ealth and o(ial A**airsE?

The 33 hears disputes that originated a*ter 3ar(h 1st, 2012 'et)een patients and insuran(e organizations, insuran(e organizations, andhealth(are providers, as )ell as 'et)een patients and health(are

providers

Th di t t l t t th i i * di l hi h i


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33 de(isions are 'inding upon the parties involved and (an 'eappealed to (ourt in a((ordan(e )ith eorgian la)

eorgia, like all *or-er UR (ountries, inherited an ine**i(ient oviet+style epide-iologi(al syste-, trou'led )ith (orruption and un-otivatedand unskilled personal 3ost pu'li( health la'oratories )ere poorlye5uipped and deteriorated 'e(ause o* (hroni( under*unding

Fighing %orr,(ion Thro,gh In!i,ional ede!ign

#n 200=, the eorgian govern-ent introdu(ed ne) pu'li( health re*or-sto upgrade the oviet sanitary -odel to 21st+(entury standards #n 200;,the tate anitary upervision #nspe(tion # )as a'olished The

# )as the -ost (orrupt 'ran(h o* the 3inistry o* ealth, having 'een*or-ally responsi'le *or inspe(ting the sanitarian standards o* -arketsand 'usiness enterprises #ts inspe(tors )ere notorious *or (olle(ting

'ri'es *ro- 'usiness o)ners

A*ter 200=, pu'li( health responsi'ilities have 'een delegated to-uni(ipalities, paid 'y ear-arked trans*ers *ro- the state 'udget Underthis arrange-ent, lo(al pu'li( health institutions are still -anaged 'y-uni(ipal govern-ents, )hile -aor pu'li( health *un(tions su(h as

inspe(tions are paid *or 'y the (entral govern-ent #t is )orth-entioning that a-ong post+oviet (ountries, only eorgia has taken upthis -odelP all others have retained the 'ureau(rati( syste- o* the UR)ithout -aor organizational (hangesE

e.or$ing Georgian har$a#e,i#al Marke

#n eorgia, a((ess to -edi(ation is *ar *ro- universal The a'ility to pay*or drugs is one o* the -ost (o--on pro'le-s reported 'y eorgian

households %evertheless, phar-a(euti(al (o-panies greatly 'ene*ited*ro- the -arket+oriented re*or-s The eorgian phar-a(euti(al -arketgre) dra-ati(ally, *ro- approi-ately /= -illion U! in 2001 to 24/-illion U! in 2011

The gro)th o* the phar-a(euti(al industry )as a((o-panied 'y a steepin(rease in households. phar-a(euti(al ependitures The share o*household in(o-e spent on phar-a(euti(als is higher in eorgia than in-ost develop (ountries ousehold spending in(reased 'y ?/> per(apita, rising *ro- 10/ to 14 "D *ro- 200= to 201040 The pur(haseo* -edi(al goods a((ounted *or ;0> o* the total health(are ependitures


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Based Healthcare

(urrently spends 4> o* its !7 on phar-a(euti(als This *ra(tion isdou'le that o* the U, a (ountry kno)n *or its high ependitures on

phar-a(euti(als 6urther-ore, retail per (apita (onsu-ption o* phar-a(euti(als in eorgia is 5uite lo), at E/ U! per year, (o-pared

to ;2 U! in Ukraine, U! in Russia, and a range o* 200 to 400 U!in "urope42

A((ording to a 2010 study (ondu(ted 'y the Curatio #nternational6oundation on the availa'ility and a**orda'ility o* phar-a(euti(als ineorgia, 'rand na-e drugs )ere typi(ally -ore epensive in the (ountrythan in the "U, usually 'y a )ide -argin At the sa-e ti-e, -ost generi(drugs )ere (heaper in eorgia than the rest o* the "U

A *e) (o-panies. -arket do-inan(e led to high -arkups *or -edi(ine,)hi(h eplain the high pri(es and ependitures *or phar-a(euti(als Anu-'er o* additional *a(tors (ontri'uted to the pro'le-s in

phar-a(euti(al -arket, in(luding high levels o* sel*+treat-ent, anddo(tors re(eiving *inan(ial in(entives *ro- large phar-a(euti(al(o-panies to overpres(ri'e

Ai*eraliaion o. he &r,g Marke

#n %ove-'er 200, the govern-ent 'egan taking proa(tive -easures toaddress the issue o* una**orda'le phar-a(euti(al pri(es A-end-ents tothe Da) on !rugs and 7har-a(euti(al Regulation )ere introdu(ed toin(rease (o-petition in the -arket and epand i-port opportunities *or(o-panies 'y re-oving trade 'arriers

The ne) phar-a(euti(al poli(y had three -ain o'e(tives 6irst, to easethe i-port o* drugs on approved lists in other industrialized (ountries

e(ond, to -ake it easier *or ne) -arket a(tors to i-port drugs dire(tlyto hospitals, do(tors, and insurers Third, to loosen regulations regardingretail phar-a(y spa(e so as to allo) super-arkets and others venders tosell -edi(ine

#-port opportunities )ere also epanded through the so+(alled8re(ognition poli(y9 and 'y allo)ing parallel i-ports o*

phar-a(euti(als Co-ple and overly 'ureau(rati( registration pro(edures )ere si-pli*ied 'y introdu(ing auto-ati( registration *or produ(ts re(ognized 'y the "uropean 3edi(ine Agen(y "3A, theUnited tates. 6ood and !rugs Ad-inistration 6!A and other


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-edi(ine dire(tly *ro- the "uropean -arket, )here they are o*ten(heaper than eorgia and C# (ountries

in(e the 'eginning o* 2011, the eorgian 7arlia-ent 'anned do(tors*ro- pres(ri'ing drugs on ready letterheads and re(o--ending spe(i*i(

produ(ts to patients o* phar-a(euti(al (o-panies 6or the *irst violationo* the nor-s the do(tor is )aiting *or a *ine o* /=1 dollars, *or the se(ond+ the a-ount is dou'led

#n April 2010, ne) outpatient drug 'ene*its )ere added to the 3edi(al#nsuran(e 7rogra- *or the 7oor 7rogra- enrollees )ere allo)ed to

pur(hase approved essential drugs )ith /0> (o+pay-ent 'y the 3inistry

o* ealth and an annual li-it o* /0 "D #n 2012, the annual li-it roseto 200 "D *or the state insuran(e progra- *or pensioners

%o$(eiion ed,#ed har$a#ie! Margin!

As a result o* the ne) -arket+oriented re*or-s, phar-a(euti(al pri(esstarted to de(line in 200 *or the *irst ti-e in the post+oviet era #n2012, the Curatio #nternational 6oundation pu'lished (o-prehensivestatisti(al resear(h a'out phar-a(euti(al -arkups 'et)een 200 and

2011 and dis(overed that the average pri(es dropped 'y E0> 7ri(eredu(tions )ere -ost pro*ound *or original 'rands in the 77GAversiG7C net)ork, a -aor player in the -arket, 'e(ause o* in(reased(o-petition

A((ording to study.s -ain *indings, -arket (o-petition dropped the-arkup o* original 'rands 'y =/> through 2012 3ark+up redu(tions *or$Bs )ere -ost dra-ati( )ithin 77GAversiG7C *ro- 0=> to 21/>

than other (o-peting phar-a(y net)orks

As a result, the (ost o* re(eiving phar-a(euti(al treat-ent has de(lineddrasti(ally over the last *our years #n 2012, the standard pri(e o*treat-ent )as /0>+;0> less than 2004E

ranted, the pri(es and availa'ility o* pres(ri'ed -edi(ines is still a pro'le- *or -ost eorgians, and *urther e**orts to enhan(e *ree(o-petition and 5uality o* (are are needed o)ever, the initial results

have 'een pro-ising


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Based Healthcare

trans*or-ed (itizens. -edi(al spending to one o* the lo)est levels in"urope

#n 2011, eorgians. li*e epe(tan(y at 'irth rate e(eeded that o* the C#

(ountries and is (lose to the indi(ator o* the "uropean region a((ordingto the


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its highest point o* ?> in 2011 Antenatal and postnatal (are is one o*the (entral (o-ponents o* eorgia.s (hild health syste- in(e 2000,(overage )ith 4 (o-plete antenatal visits has 'een in(reasing and ite(eeded the o* the populationigni*i(ant progress has 'een -ade in preventative treat-ent The OointUnited %ations 7rogra- on #KGA#! re(ognizes eorgia as a (ountrythat provides universal a((ess to Anti+Retroviral Therapy !espite )ideavaila'ility o* treat-ent, eorgia still has one o* the highest rates o*A#! in "urope at 41 in 100,000 people, (o-pared to an average o* 1/in "astern "urope as a )hole

eorgia has eperien(ed a huge redu(tion o* tu'er(ulosis TB sin(e200 #n 2010, the in(iden(e rate de(reased 'y 2?> *ro- the previousyear, and in 2011 it de(reased 'y another 4/> !espite these positiveresults, TB re-ains 5uite prevalent in eorgia (o-pared to other(ountries Tests and treat-ents *or TB patients, in(luding -edi(al devi(ereporting *or-s, are provided 'y the govern-ent *ree o* (harge

#n 200/, the treat-ent su((ess rate o* s-ear positive pul-onary TB )as;4> By 2011, it in(reased to =;> #n 2011, there )ere no signi*i(ant(hanges in general in(idents o* -easles and ru'ella #n(iden(e o* -easlesin (hildren de(reased 'y 1=4> )hile in(iden(es o* ru'ella dropped 'y=E>

$ther (ountries, 'oth ri(h and poor, (an learn *ro- eorgia.s healthre*or-s to rethink the role o* govern-ent and pu'li(+private partnershipsin the health se(tor


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Based Healthcare

Chapter 3: Georgia’s Health Reform’s in a

European ContextB+ Mi#hael Tanner6 %ao In!i,e

#* rising pension (osts are the 'iggest threat to the -odern )el*are state,the rising (ost o* health(are is a (lose se(ond This see-s parti(ularlyironi( sin(e so -any A-eri(an (o--entators have (alled *or the Unitedtates to adopt a "uropean -odel *or delivering health(are #ndeed, it(an 'e argued that the U.s latest e**ort at health(are re*or-, the 7atient

7rote(tion and A**orda'le Care A(t, re-akes -u(h o* our health(aresyste- in a "uropean -anner

Fet, "urope (learly has not solved the (onundru- o* trying to epanda((ess )hile (ontrolling (osts Although every "uropean (ountry spendsless on health(are than the U, the (ost o* (are is nonetheless rising*aster in nearly all "U (ountries than the level o* *unding availa'le to pay*or the- As the Wall Street ournal notes, 8"uropeansQ*a(e steeper-edi(al 'ills in the *uture in their (ash+strapped govern-ents9 At thesa-e ti-e, "uropean e**orts at (ost (ontrol have *re5uently resulted indire(t or indire(t rationing that -akes their nations pro-ises o* universal(overage ring in(reasingly hollo)

6a(ing the )orst o* 'oth )orlds @ rising (osts and rationed a((ess @-any "uropean (ountries have 'egun to introdu(e -arket -e(hanis-sinto their syste-s Thus, )hile the U has shi*ted to)ard -ore o* a"uropean+style health syste- over the past *e) years, "urope is shi*ting

to)ard a syste- that looks -ore like the U But, su(h re*or-s have 'een tentative to date, and -any -ay )ell end up 'eing too little, toolate

The #nternational 3onetary 6und esti-ates that on average, health(arespending 'y "uropean govern-ents )ill in(rease 'y t)o per(entage

points o* !7 'y 20E0 and -ore than E per(entage points o* !7 inAustria, reat Britain, ree(e, #(eland, Due-'ourg, 7ortugal, and)itzerland


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in(rease is epe(ted to e(eed ;/ per(ent o* !7 That alone )oulddrive govern-ent spending in the average "U (ountry to -ore than />o* !7

o* health(are (osts The elderly are -ore likely to have at least one(hroni( disease, i* *or no other reason than the *a(t that a longer li*espan

provides -ore ti-e *or a 'ody.s natural geneti( 'reakdo)n to o((urAlready, nearly one+third o* "urope.s population has a (hroni( disease or(ondition As the nu-'er o* senior (itizens rises, so too )ill the (ost o*(aring *or the-


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Based Healthcare

GeorgiaE! e.or$!

eorgia.s health syste- 'e*ore the Rose Revolution )as a (entralizedsyste- al-ost (o-pletely (ontrolled and planned 'y the govern-ent #t

strove to provide (o-prehensive, *ree, and a((essi'le (are *or everyone!espite these stated intentions, the syste- )as drasti(ally under*unded,the health(are it provided )as inade5uate, and a((ess to (are )as *ar*ro- universal


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3ean)hile, the govern-ent share o* health ependitures has re-ainedrelatively steady over the sa-e period in 200, in part 'e(ause o* the glo'al re(ession, and in

part due to the lingering e**e(ts o* transitioning a)ay *ro- the oviete(ono-y By international standards de*ining poverty as those living onless than I12/ a day adusted *or pur(hasing po)er parity, the poverty

rate )as roughly 1/> in 200 eorgia has devised a )ay to providetargeted assistan(e to people )ho )ould other)ise *a(e adverse healthout(o-es due to la(k o* (are )hile, at the sa-e ti-e, -ini-izing -arketdistortions and 'olstering its *ledgling insuran(e industry in(e 200?,eorgians living 'elo) the poverty line have 'een provided )ithvou(hers to pur(hase private health insuran(e plans Through this-e(hanis-, as opposed to a state health insuran(e s(he-e, eorgia

pla(es the de(ision+-aking po)er in the hands o* individual (onsu-ersand en(ourages (o-petition a-ong insuran(e providers Consu-ers are

not insulated *ro- the (osts o* health(are, and providers (o-pete *orlo)er (osts and i-prove 5uality in order to attra(t (usto-ers

eorgians not living 'elo) the poverty line are epe(ted to pur(hasetheir o)n private health insuran(e voluntarily or pay out o* po(ket *orservi(es The very targeted and li-ited govern-ent intervention inhealth(are, restri(ted to those 'elo) the poverty line, has allo)ed theeorgian health syste- to su**er *ro- *ar less -arket distortion than

-ost developed (ountries in "urope and the U


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pro-ote the role o* the private insuran(e industry, the eorgiangovern-ent -ust resist the te-ptation to epand its regulatory role andintrodu(e additional -arket distortions that (ould derail its e-erginghealth insuran(e industry 7rogress is 'eing -ade already, and the

insuran(e syste- is starting to take hold as the nu-'er o* insured peoplehas rea(hed 1/ -illion, -ore than a third o* the population

eorgia.s *o(us on *ree+-arket -e(hanis-s to reshape it health(aresyste- (an serve as a *ra-e)ork to other *or-er C# (ountries in theregion, )hose -ore (entralized syste-s have struggled to keep pa(e


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%ha(er 4: /n Iner'iew wih akha

Bend,kide6 For$er Georgian Mini!er .ore.or$ %oordinaion

HI ,nder!ood ha hi! i! he #r,#ial $o$en5 I. I #an kill hi! idea6

hen we ha'e a #han#e o go o a (ri'ae !+!e$5

/0 So, initially 1 would be interested in what you see as the most

im!ortant ste!s of the 2eorgian health reforms. 1f you could !oint out

the main ste!s which, in your o!inion, were crucial for setting u! the

right institutions.

:B& # think li'eralizing the syste- 'y allo)ing that the private providers

and private insuran(e )ere very i-portant steps in order to get rid o* thesingle payer and single provider syste-

The 5uestion is )hat is the produ(t o* health (are ealth (are is -ainly

selling a servi(e o* getting healthy Fou 'e(o-e ill, you go to the do(tor,

and have the servi(es provided to you But this understanding is deeply

)rong #t.s not the servi(e )hi(h health(are is selling ealth(are is

selling 'eing healthy servi(e o, # read -any years ago ho) health(are

)as organized in An(ient Chinese villages They have a do(tor, and thisdo(tor )as paid one egg or (hi(ken 'y ea(h *a-ily )hen ea(h *a-ily

-e-'er )as healthy


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use these *unds The politi(al situation and setup o* so(ial net)orks give

you an ans)er& you should use these *unds *or K#7s Be(ause, *irst o* all

'e*ore you have universal (overage and so-e 3e-'er o* 7arlia-ent

(o-es to your hospital


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)ith heart and she.s hospitalized in that hospital9 And it )as a private

hospital near the house )here she )as living # spent -y li*e outside

eorgia, so # don.t kno) the in*rastru(ture )ell o, # told these people

#.ll go to -y -other *or -ay'e like 40 -inutes, please go take so-e(o**ee and #.ll 'e 'a(k, 'e(ause it.s part o* the parlia-entary hearing in

t)o )eeks # go to see -y -o- and # ask -y driver, do you kno) )here

this is e says, 8yeah yeah yeah, # kno)9, and a*ter t)enty -inutes )e

are -oving through so-e piles o* trash, and # tell hi- okay you don.t

kno) dire(tion ask so-eone And he says, 8%o, no, no, that.s the

dire(tion9 And )e stopped 'et)een several piles o* trash and that.s the

hospital #t )as an ugly, hal* de-olished 'uilding # sa) -y sister

looking *ro- the 'uilding he says, 8Co-e to *ourth *loor9 There )as a

strange elevator and it )as -ore or less (lean there "verything )as ok

)ith -y -other


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-e and )e did lots o* )ork together 'ut he kno)s everyone 'e(ause he

)as pro*essor o* -edi(al university and he has lots o* students and i*

do(tor )as young he )as his student i* do(tor )as old he )as his

tea(her

And 'e(ause the idea o* having private providers )as )eird at that

-o-ent o, # )as talking a lot )ith 3inister o* ealth, ho) to privatize,

-ay'e like giving o)nership to -edi(al personnel, 'ut to (ri'aie6

(ri'aie6 (ri'aie5

Also the 3inister had Andria Urushadze as an advisor, )ho 'e(a-e

3inister o* ealth so-e years later e )as supportive o* the idea o* privatizing, 'ut he )as not sure and s(ared o* )hat )ould happen And

)hat helped -e, there )as


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these hospitals9 And everyone understands that )e have ;0, =0, or 200

s-all hospitals s(attered around the (ity, you (annot (entrally -anage

those o, the only )ay is to privatize it

And # re-e-'er the 7ri-e 3inister asked the 3inister o* ealth(are&

8$h, (an you tell us, is there real private hospitals eisting anypla(e in

)orld9 And he said, 8Feah *or ea-ple 3ayo Clini( is private

hospital9 o, that )as the 'ig a(hieve-ent A*ter )e designed the plan,

)hi(h )as (alled The ospital e(tor Re*or- eneral 3aster 7lan, #

agreed )ith the o* the 'eds to the (o--unity

hospitals / he !a$e i$e we he (ro*le$ ha here wa! a

#o$(leel+ ,nde'elo(ed healh in!,ran#e $arke in Georgia

!ue to the -arginal role o* private insuran(e -arkets in eorgia, )e

kne) that private health(are insuran(e )ould not a(hieve very high

per*or-an(e *or several years The idea )as that )e have private

providers and private insuran(e (o-panies #n order to (over the poor in

su(h a syste- )e -oved *ro- a universal (overage to -eans+'ased

(overage 'y providing health(are vou(her to people 'elo) the poverty

line The plan )as that this (overs hal* o* the population )ith vou(hers

*ro- govern-ent and the- using the vou(hers *or pur(hasing


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Based Healthcare

that the new owners invest in them3 5ou didn6t sell them, but you

basically gave them away.

:B& Feah, politi(al (onstraint )hi(h )as arti(ulated 'y the 7ri-e

3inister


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)ill 'e sort o* (reative destru(tion even )ithin the 'undles Fou -ay

have, several t)enty+'ed hospitals in the region o-e (hains )ill

trans*or- the regional outlets to a-'ulan(es and *o(us on )ell+

developed day (are in the Regions and -ove *or the surgery to thehospital (hain.s -ain hospital This sort o* port*olio (onsolidation

happens on the -arket

e(ond, ne) investors )ill (o-e and invest Be(ause they )ill

understand that this is a (ountry )ith a private health(are syste-, and it

happens, there is signi*i(ant (onstru(tion o* private hospitals in eorgia

A'out 1,000 ne) 'eds have 'een (onstru(ted sin(e the privatization

o-e Azeri 'usiness-an *ro- Baku (a-e to T'ilisi and sa) theopportunity to invest in the hospital se(tor is 2/0+'ed private hospital

is under (onstru(tion near to -y University

$* (ourse, the -ain 'a(k'one o* syste-, are still the 'ro)n*ield

invest-ent that )ere given a)ay )ith the 'undles 'ut also s-aller

green*ield invest-ents (an 'e seen in the eorgian health(are -arket #n

ea(h regional (enter, there is -ore than one s-all (o--unity hospital,

and this syste- is )orking that )ay $* (ourse, the initial idea )as 'ased

on (o-plete (o-petition in every )ay The govern-ent is providing

vou(hers to people 'elo) so-e level o* poverty and those people are

(hoosing )hi(h insuran(e (o-pany they )ant to 'e (overed 'y And

then the respe(tive insuran(e (o-pany deals )ith hospital ho) they )ant

that patient to 'e servi(ed

/0 he healthcare service !ricing 9ust ha!!ens on the mar)et, right3

:B& Feah, )e.re ust providing the vou(her that is adusted to -arket+

'ased esti-ation o* )hat is the pre-iu- This also depends on )ho-

you are providing insuran(e

/0 So, 1 thin) that6s very com!rehensive regarding !rivati*ation. 1 thin)

what would be most interesting for readers from other !ost-soviet

countries is how you successfully managed to crush the resistance of

doctors. +ow you basically too) health !olicy away from doctors.


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The registration o* drugs in eorgia dis+in(entivized -any large drug

-anu*a(turers to enter the eorgian -arket #-agine you are a large

phar-a(euti(al (o-pany and you )ant to register a drug in a s-all

(ountry like eorgia They kno) that registering drugs in s-alldeveloping (ountries is o*ten (o-'ined )ith 'ri'es That.s )hy 'ig

phar-a(euti(al (o-panies gave e(lusive distri'ution li(enses to

eorgian )holesalers and phar-a(y (hains This registration hurdle

(reated leverage *or i-porters due to the e(lusivity they are granted

)ith That kept pri(es 5uite high


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-arkets )here drugs are sold very (heap eg ree(e That redu(ed

pur(hasing epenses o* i-porters eorgia

#n so-e (ountries, there are govern-ent su'sidies *or drugs, they go

so-eti-es dire(tly to the )holesaler There )as 'ig resistan(e 'y

eorgian phar-a(y (hains They )ere opposing the re*or-s A*ter )e

li'eralized parallel i-ports and a'olished registration rules it took a'out

eight -onths *or the -arket to adust and to provide (onsu-ers )ith

(heaper drugs at the sa-e 5uality

/0 So, 1 thin) we can come to your current assessment of what ha!!ened

to the health system since fall %#"% and what your current outloo) is.Will the mar)et-based character of the 2eorgian health system !revail3

:B& $* (ourse, nothing lasts *orever $nly the pyra-ids, -ay'e 6ro-

$(to'er 2012 on )e have ne) govern-ent, a very populist govern-ent

And he *irst 7ri-e 3inister o* that govern-ent appointed a 3inister o*

ealth )ho )as running the heavily *unded hospital in the 7ri-e

3inister.s ho-eto)n This state+o)ned hospital is *ully *unded 'y the

*or-er 7ri-e 3inister 6ully+*unded 'ased on )orse (ase e-ashkosyste- o, let.s say that average stay o* patients )hi(h in "uropean

(ountries )as *our days, in eorgia )as *ive days N in this hospital it )as

thirty+days Be(ause, )ho (ares, you have unli-ited *unding, you have

ne)ly re*ur'ished hospital, you (an stay there one -onth #t is good *or

the do(tor 'e(ause nothing 'ad happens to patient, and it.s good *or

patient 'e(ause he (o-es *ro- a re-ote village and is no) sitting in a

good and -odern environ-ent

o the *or-er head o* this hospital is no) 3inister o* ealth(are e.s

-ore aggressive than other -inisters trying to de-olish the syste- The

dire(tion is -ore or less (lear so they )ant to -ake the syste- -u(h

-ore regulated in(luding regulation o* (osts, )hi(h is i-possi'le

a(tually, 'ut he thinks that he (an regulate (osts in ea(h hospital They

)ant to go to universal (overage, they de(lared it, 'ut there is not enough

-oney *or universal (overage, and they the state )ant to run so-ehospitals, )hi(h # think they )ill


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universal health(are o, reality is that there is no universal health(are

At the sa-e ti-e, you have private providers, so-e o* the- 5uiet 'ig

Fou have private insuran(e (o-panies )ho have kno)ledge o* private

insuran(e, and these insuran(e (o-panies are trying to provide the tiny part that is (overed 'y pseudo+universal insuran(e and the additional

(overage that they are selling, supple-entary insuran(e upple-entary

insuran(e is -u(h 'igger than the 'asi( 'ene*it pa(kage de*ined 'y the

ne) govern-ent

/0 7)ay, so the universal coverage is already introduced3

:B& Feah, it.s introdu(ed, 'ut it.s not universal There )as so-ething(alled 8universal (overage,9 'ut is not universal (overage 'e(ause there

is no -oney *or universal (overage Universal (overage is -ay'e 40> o*

needs + so ;0> are out+o*+po(ket or health(are insuran(e pay-ents

depending on ho) e**e(tive health insuran(e is The (urrent govern-ent

also )ants to tighten regulation in the phar-a(euti(al -arket #t looks

like )e )ill have so-e sort o* (o-pro-ise

o, the i-portant part o* the story is that the -eans+tested syste- is veryunpopular #t takes huge politi(al )ill to (onsider -eans+tested syste-

'e(ause )hen you have a loud -inority )hi(h is (lose to -eans+tested

part and a little 'it a'ove and they are unhappy 'e(ause they are not

re(eiving this aid #n eorgia the syste- )as (o-pletely dys*un(tional N

This helped us to introdu(e a totally ne) and private syste-

$* (ourse, there )ere -istakes also 6or ea-ple, govern-ent in 200

de(ided to e5uip the insuran(e (o-panies )ith te-porary regional

-onopolies and thus taking the *reedo- o* (hoi(e a)ay *ro- the

patients There is nothing 'ad )ith in -onopolies as long as -onopolies

are 'ased on -arket *or(es But overn-ent is the (reator o* 'ad

-onopolies

Another 5uestion is that, 'ig 5uestion that people raise, is the syste- o*

private greed+'ased insuran(e (o-panies 'etter *or providing servi(es

)hi(h are *unded 'y govern-ent 'e(ause they are (aring a'out pro*it

#t. t l th t i l 'i t i d th


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and *ind that you (an have ten insuran(e (o-panies and -erge the- in

one and also tell the- that you don.t (are a'out pro*it, you (an

signi*i(antly redu(e overhead and signi*i(antly redu(e (ost

But that.s the pri(e that )e are paying *or sta'ility o* the syste- or

(o-petitiveness o* the syste-


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/*o, he /,hor!:

/ndria r,!hade: Urushadze served as the 3inister o* ealth,Da'our and o(ial A**airs o* eorgia *ro- epte-'er 10, 2010 to 3ar(h1/, 2012 e )as 'orn on April 2/, 1;? in T'ilisi, eorgia #n 1E, hegraduated *ro- the eneral 3edi(ine !epart-ent o* T'ilisi tate3edi(al University #n 1E+14, he took post graduate (ourses in"ndo(rinology at the sa-e institution #n 1=, he (o-pleted studies atthe (hool o* overnan(e e then (o-pleted pe(ial Training Course*or "e(utive 3anagers o* #nsuran(e Co-panies in )itzerland in 1?

6ro- 1E through 1/, he )as the Ki(e+7resident o* eorgian Fouth#nternational 6oundation #n 1/+1=, Urushadze )as the head o* the#nternational 7rogra-s #-ple-entation Bureau at the tate Chan(elleryo* eorgia 6ro- 1= until 200/, he )as the "e(utive !ire(tor o* aninsuran(e (o-pany

akha Bend,kide: Bendukidze is a eorgian politi(ian and 'usiness-an A*ter the Rose Revolution, he served as eorgian 3inistero* "(ono-y OuneN!e(e-'er 2004, 3inister *or Re*or- Coordination

!e(e-'er 2004 + Oanuary 200? and ead o* the Chan(ellery o*overn-ent o* eorgia 6e'ruary 200? + 6e'ruary 200 Bendukidzegraduated *ro- the !epart-ent o* Biology o* T'ilisi tate University in1== and *ro- the 7ostgraduate (hool o* the 3os(o) tate Universityin 1?0 6ro- 1?1 to 1?/, he )orked *or the #nstitute o* Biology and7hysiology o* 3i(roorganis-s in 7us(hino 6ro- 1?/ to 1??, he)orked as the head o* the Da'oratory *or 3ole(ular eneti(s at #nstituteo* Biote(hnology

Mi#hael &5 Tanner: Tanner is a senior *ello) at the Cato #nstitute in


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Frederik %+r,! oeder: Roeder is a er-an health e(ono-ist and-anaging dire(tor o* ealth(are olutions )orking in the *ield o*

health(are syste-s in transition e serves as a Kisiting 7ro*essor *orealth 3anage-ent at the Dithuanian University o* ealth (ien(es,:aunas Dithuania and as a Kisiting 7ro*essor *or ealth(are3anage-ent and "(ono-i( at #lia tate University, T'ilisi eorgia eappeared in di**erent international ournals and -edia outlets on varioushealth(are related topi(s e is an Asso(iated Resear(her at the 3ontreal"(ono-i( #nstitute


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Endnotes


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1 Ri(hard :au*-an and Oohn ardt The 6or-er oviet Union in Transition edited *or the United tates Congress Ooint

"(ono-i( Co--ittee 1E

2 Gzirishvili 1998

3 P Braveman. 2003

4 TNO report. 2001

5 Y. Maltsev. What soviet medicine teaches us? 2012

6 see& in*or-al pay-ents in oviet "stonia

7 !onald Bar

8 Tido von (hoen+Angerer Understanding health (are in the south Cau(asus& ea-ples *ro- Ar-enia 1

9 zirishvili 3ataradze ealth(are re*or-s in eorgia 1?

10


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27 The resolution of the Government of Georgia #11 as of January 26, 2007

28 HiT Georgia. 2009

29 A rayon (pl. raiony) is a type of administrative unit of several post-Soviet countries (such as part of an oblast).

30 The resolution o* the overn-ent o* eorgia V110 as o* April 10, 2010

31 World Bank

32


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healthcare reform in the republic of georgia a healthcare reform roadmap for post semashko countries...

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