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Another issue consists in the fact that the current de facto situation contradicts key principles of the budget sphere organization. According to these principles, public institutions remain major social service pro viders as was mentioned above. Developed in early 1990s and secured in the Civil Code the order of management of public institutions and granting them public property was not as originally designed for a situa tion where extra budgetary sources of financing will become the condi tion for social sphere performance. Moreover, the course of events that took place in 1990s stipulated for a more rigid control over the budget ary funds spending. Inalienable part of that was a clear implementation of revenue and expenditure balance. In latest years such control was transferred onto extra budgetary flows of funds of public institutions, which resulted in a more acute crisis in relations in the executive power, and mainly, have not solved the main issue connection between the quality of social service delivery and financial capacity.

Till present day there was no considerable movement in the direction of achieving above mentioned reform objectives in the social sphere in Russia in spite of the fact that corresponding tasks were ensured in several Government documents3.

Issues related to reviewing government social guarantees are out of the present research4. Issues related to reorganization of public net Plan of Actions of the Government of the Russian Federation in the sphere of so cial policy and modernization of the economy for 2002001 (approved by the De cree of the RF Government on 26 July 2000 No.1072 p); Socio economic devel opment program of the Russian Federation on medium term perspective (2002 2004) (approved by the Decree of the RF Government on 10 July 2001 No.910 p);

Socio economic development program of the Russian Federation on medium term perspective (20032005) (approved by the Decree of the RF Government on 15 August 2003 No.1163 p).

See in detail: Analysis of the participation of population in payment for social ser vices guaranteed by the state. S.V. Shishkin, A.S. Zaborovskaya. Moscow, IET, 2004.

work and transfer of part of service delivery to private sector were dis cussed in detail in the framework of the past CEPRA project Increase of Effectiveness of Funding Public Institutions and Management of State Unitary Enterprises. In that report authors tried to formulate con clusions related to reorganization of the system of budgetary institu tions as well as to provide in depth study of major changes in the reform blueprint in this sphere during the time passed from the end of the pre vious project. Principal attention in this research will be devoted to re forming the budget network that was not dealt with in the previous pro ject. The authors will also work on the optimization of the budget net work; new methods of public financing of social service delivery and performance based budgeting.

This report consists of four chapters.

First chapter provides analysis of the current state of the budget network and budget funding of the social sphere with respect to certain branches of the public sector: health care, education, science and cul ture.

Second chapter is dedicated to analysis of international experience in the sphere of public sector financing. In this chapter such concepts as alternative service delivery and contemporary approaches to per formance based budgeting will be reviewed. Principal attention will be paid to mechanisms for evaluating performance based budgeting and effectiveness of social service delivery and the mechanism for contract ing institutions and public sector workers.

Third chapter of the report is the core one. This chapter is dedicated to the analysis of general ways and prospects of public network reform.

The chapter is divided into subsections, which are dedicated conse quently to optimization of budget network application of new organiza tional and legal forms in public sector, modernization of financing mechanisms for social service delivery and implementation of perform ance based budgeting.

Fourth chapter is dedicated to major venues of reform in separate branches of public sector. This chapter is based, on the one hand, on general approaches to public sector reform stated in third chapter, and on the other, on the results of international experience analysis of public sector funding related to separate brunches stated in fourth chapter.

Main conclusions form part of each chapter (subsection) of the re port.

1. Analysis of Current State of Public Sector and Public Financing of the Social Sphere 1.1. Health service 1.1.1. Financing of the public health system A more precise delineation of powers in the health care system be tween federal, regional and local authorities was carried out in the course of the reform process of the system of division of powers during 20032004 and was secured in Basic Principles of Russian Federation Public Health Legislation on health protection of the citizens as of July 22, 1993 No.5487 15. According to this legislation expenditure obliga tions of the subjects of the Russian Federation in this sphere are as fol lows.

Provision of funding for delivering specialized emergency medical care.

Provision of funding directed at providing specialized medical assis tance to citizens in dermatovenerologic, antituberculous, nar cological, oncological dispensaries and other specialized medical institutions (except federal specialized medical organizations whose list is approved by the Government of the Russian Federa tion).

Provision of funding directed at delivering medical and social assis tance to the citizens that have socially important diseases (except assistance provided by federal specialized medical institutions whose list is approved by the Government of the Russian Federa tion).

Provision of funding directed at delivering assistance to the citizens that have diseases, which threaten people at large (except assis Latest amendments into this document were introduced by the Federal law of 22 August 2004 No.122 FZ On Introducing Amendments Into Legislative Acts of the Russian Fed eration and Acknowledging Becoming Invalid of Certain Legislative Acts of the Russian Federation due to adoption of Federal laws On General Principles of Organization of Leg islative (Representative) and Executive Bodies of State Power of the Constituent Mem bers of the Russian Federation and On General Principles of Organization of Local Gov ernance in the Russian federation. tance provided by federal specialized medical organizations whose list is approved by the Government of the Russian Federation).

Also according to paragraph 5, part 1, article 6 of Fundamental Leg islation on health protection, the subjects of the Russian Federation form budget expenditure on compulsory health insurance to cover the nonworking population:

Municipalities have the following financial obligations:

Provision of funding directed at delivering primary health care as sistance in outpatient departments and policlinics, medical assis tance to pregnant women, during and after childbirth;

Provision of funding directed at delivering emergency medical care to the citizens.

Russias expenditure liabilities on health care are not defined in any normative act. In practice, these expenditure liabilities include: delivery of funding directed at providing specialized medical care by federal specialized public health institutions; implementation of federal target programs in health care system; levelling of financial conditions of the territorial compulsory health insurance funds in the framework of basic program for compulsory health insurance (which is carried out from the funds belonging to the Federal Compulsory health insurance Fund).

Implementation of the compulsory health insurance system, which had to replace the old system of budget financing of health care, con tribute to increased economic stability of the branch and improvement of efficiency of its resource potential. Such implementation started in the first half of the 1990s. Compulsory health insurance represents a component of the government medical insurance, which secures equal possibilities for Russian citizens in obtaining medical assistance and medication delivered from compulsory health insurance funds in the volume and on conditions corresponding to compulsory health insur ance programs.

According to the Federal Law of Russian Federation On Health In surance of the Citizens in the Russian Federation No.1499 1 funding of the health care organizations should take place on the following basis:

medical organizations should enter into agreement with insurance companies. An Agreement on delivery of therapeutic and preventive care services (health care services) represents an agreement accord ing to which a medical institution undertakes an obligation to deliver medical services to an ensured person in a certain scope and quality over a specific period of time within the framework of the medical insur ance program.

Federal and territorial compulsory health insurance funds bear re sponsibility to accumulate funds for compulsory health insurance sys tem, securing financial stability of the public system of compulsory health insurance and equalizing financial resources allocated for its im plementation.

Financial means of the state compulsory health insurance system are accumulated out of the insurance contributions made by insurers for compulsory health insurance purposes. Compulsory health insur ance of working citizens is realized out of the contributions made by employers. Compulsory health insurance of the nonworking citizens and public servants is realized through the budgetary appropriations of the constituent members of the Russian Federation and local budgets.

Starting with January 1, 2001, contributions to compulsory health in surance funds in the volume of 3.6 per cent are made within a unified social tax. Chapter 24 of the Tax Code of the Russian Federation de fines the order of payment of this tax. Federal and territorial compulsory health insurance funds finance health insurance companies. Regional compulsory health insurance funds accumulate financial resources from the budget and employers in the form of the uniform social tax 0.2 per cent and 3.4 per cent respectively.

The federal Program of government guarantees for providing the citizens in the Russian Federation free medical care and similar territo rial programs represent a basis for developing budgetary expenditure estimate on health care and extra budgetary funds.

The Program of government guarantees for providing free medical care to Russian citizens was approved by the Decree of the Govern ment of the Russian Federation on September 11, 1998 No.1096 and later on was approved annually by the RF Government. Basic program of compulsory health insurance represents a component of this Pro gram. The Program determines the scope of medical care services that the government undertakes to deliver on a free basis to the population.

Program funding is realized from the budgets of all levels, compulsory health insurance resources and other payments.

The Program includes:

1) a list of types of medical care delivered to the population on a free basis;

2) basic program of compulsory health insurance;

3) scope of medical care;

4) order of formation of per capita norms for the health care system funding, which guarantee delivering guaranteed scope of medical ser vices.

Executive authorities of the subjects of Russian Federation are de veloping territorial programs of government guarantees directed at providing the Russian citizens free medical care on the basis of the fed eral Program and Methodological recommendations on formation and economic justification of territorial programs of government guarantees for providing free medical care to the citizens in the Russian Federation.

These territorial programs can envisage delivery of additional scope and types of medical services from the funds of the constituent mem bers. Territorial program represents a packet of documents, which de termines a list of diseases, types, scope and conditions for service de livery and funding of federal and municipal medical care provided to the population from the budgets of all levels, from compulsory health insur ance funds and other receipts. This packet of documents also contains territorial social standard, which determines the scope of various types of medical care, which ensure realization of state and municipal medical services and expenditure normative required for their provision. List of types of medical care according to territorial program of compulsory health insurance cannot be less than the list defined by the basic pro gram of compulsory health insurance. The scope of medical care de pends on the structure and level of morbidity of the population of a sub ject of Russian Federation.

Methodological recommendations are designed to describe in detail methodology for developing a territorial program. The scope of free medical care available to the population of the RF constituent member is determined using a normative of a scope of treatment and preventive care per 1,000 persons. Health service officials of a subject of the Rus sian Federation calculate territorial social standard of the scope of free medical care adjusted to demographic features, level and structure of population morbidity in a subject of the Russian Federation. Based on obtained normative, cost estimate of planned scope of medical services envisioned in territorial program, which includes compulsory health in surance program is carried out.

The order of territorial costs estimate on health care is described in detail in the methodological recommendations. Territorial normative which define the volume of free medical services are developed on the basis of federal normative expressed in the number of bed days per 1,000 persons, a required scope of hospital services for adults and for children per 1,000 persons (inhabitants) of RF subject (at the same time, a correction factor is used, which takes into account demo graphic features of a specific subject of the Russian Federation).

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