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By calculating territorial normative of financial costs (which must guarantee covering all costs of medical institutions across all expendi ture lines on providing guaranteed scope of free medical services from all funding sources) an average cost of one bed day in different type hospitals and of an average visit to an out patient facility (including a home visit), a day of inpatient treatment in a day hospital and an ambu lance call is calculated (adjustment is made with the help of certain in dices). The Compulsory health insurance system covers salaries, pay roll accounting, medication and dressing materials, meals and uniform.

Then a draft territorial program goes through an approval procedure in competent bodies of executive power of the subject of the Russian Federation. On the basis of defined scope of medical services and terri torial normative of financial costs the expected value of territorial pro gram is determined for the subject of Russian Federation and for mu nicipalities.

Local officials draft a municipal orderdelivery of public municipal medical services, which contains municipal health care system and all municipal medical institutions performance indicators for the coming year. Coordinated drafts of municipal orders, plans for regional medical institutions for public medical service delivery and quotas belonging to a subject of the Russian Federation for the treatment of citizens in the federal public health institutions (under federal budget appropriations) comprise territorial program.

In practice, in the early 1990s through the end of 1990s there was a trend, which demonstrated a reduction in funding on the health care system originating from the public sources in comparison with the pre reform level (see Fig. 1). However, starting with the year 2000 a growth was posted. That growth resulted in the fact that in the year 2004 the level of 1992 funding was surpassed: RF consolidated budget appro priations on health care and epidemiological monitoring came to 291.billion rubbles or 20.1 per cent of the consolidated budget expenditure assigned for social and cultural measures6.

Regarding the volume of government funding appropriated for the health care system in per cent of GDP this indicator was the highest in the year 1997 and amounted to 4.1 per cent of GDP. It went down later and amounted to 3.0 per cent of GDP in 2004.

100 84 84 74 72 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Budgetary assignments for health care Source: Calculated from RF Goskomstat data.

Fig. 1. Dynamics of government expenditure on health care (1991=100%) Despite its gradual increase, the share of compulsory health insur ance funds in the volume of appropriations from the consolidated budget of the Russian Federation for the health care system still re mains below the budget share. For example, in the year 1995 the vol ume of compulsory health insurance funds constituted 28 per cent of the consolidated budget of the Russian Federation appropriations for www.minfin.ru.

the health care system, in the year 2000 this share constituted 33.7 per cent, in 2002 39.7 per cent, in 2003 40.3 per cent, and in 2004 46.5 per cent. According to the reform program compulsory health in surance system had to accumulate two thirds of the overall volume of the government health care financing. The reason for this lies in the fact that the subjects of the Russian Federation and local authorities prefer not to make contributions to the compulsory health insurance system for the nonworking population. As before, they simply prefer to finance medical institutions. As a result, health service delivery to the population according to the basic compulsory health insurance program are fi nanced both from the compulsory health insurance funds accumulated in the territorial compulsory health insurance funds and from the budget assignments, which are managed by the health service officials.

Duality of the sources and methods of funding of public medical ser vice institutions envisioned in the basic compulsory health insurance program represents the key issue of organization of financing of public health institutions. According the compulsory health insurance system mentioned types of medical services had to be financed only from the compulsory health insurance funds. However, in practice they continue to be financed both from the new source compulsory health insurance system, and from the old one the budget. However, according to the federal recommendations budgetary and insurance funds should be used to cover different expenditure outlays. In practice, very often in dependent expenditure lines of therapeutic and preventive care institu tions are covered simultaneously from two mentioned above funding sources.

Financing of regional and local prophylactic hospital type institutions from two sources on different expenditure lines or even on intersecting lists of expenditure outlays is carried out on the basis of different princi ples. In the compulsory health insurance system they use mechanisms of payment that tie up the volume of funding with the scope of medical service delivery. On the contrary, budgetary financing of separate ex penditure lines of prophylactic hospital type institutions is realized ac cording to general rule as covering the maintenance costs of these in stitutions irrelevantly of the real scope and quality of medical service delivery. Such combination of insurance and budgetary funding re duces the outcome expected from new payment mechanisms proceed ing from the compulsory health insurance system. It does not create incentives for hospital type institutions to look for ways to save on costs on different lines, to look for variants for more rational redistribution of funds between expenditure lines. Existing system of state funding of prophylactic hospital type institutions does not guarantee visible pres sure exerted on those institutions in order to improve efficiency of their performance but contributes reproducing current hang the expense (so called zatratny metod) economic approach.

One more drawback of the two channel system of funding consists in the fact that there is no chance for competition between public hospi tal type institutions and the private ones. At present the overwhelming majority of medical institutions are public or local organizations. This is an inevitable result of a two channel system of funding, according to which tariffs on medical services deliberately do not cover within com pulsory health insurance system costs required for the provision of cor responding services, and consequently, private medical organizations are not interested to participate in compulsory health insurance system.

This issue is not urgent for the federal medical institutions. Over whelming part of their public funding comes in the way of funds appro priated under the federal budget. For example, in the year 2000 the share of compulsory health insurance funds in the aggregate revenues of the federal medical institutions constituted less than 5 per cent.

Major share of funds for health care are appropriated under the budgets of the subjects of Russian Federation and local budgets. In the period between 1995 and 2003 they constituted about 90 per cent of the consolidated budget expenditure on health care. Major part of medical institutions remains also in jurisdiction of regional and local au thorities. Let us analyze in detail the structure of expenditure on health care at the subnational level taking as an example the Vologda oblast whose indicators are close to all Russia average indicators.

For example, the share of all public funds in the overall volume of ex penditure on health care system in the Vologda oblast amounted to 91.4 per cent in 2002 and to 83.7 per cent in 2003. As can be seen from Table 1, the share of paid medical services and of voluntary health in surance contributions is increasing in the overall health care structure funding is increasing in the oblast.

Table Structure of health service sources of financing in the Vologda oblast, in per cent 2002 Federal budget 1.2 0.Oblast budget 19.4 15.Municipal budget 29.5 28.Compulsory health insurance contributions 41.2 38.Total state sources 91.4 83.Paid services and voluntary medical care insurance 8.6 16.contributions Total public sources and funds from paid ser vices and voluntary medical care insurance 100.0 100.contributions Total public sources and funds from paid services and voluntary medical care insurance contribu 2716 3632.tions, in million rubbles Source: Health care department of the Vologda oblast.

In the Vologda oblast the role of contributions to compulsory health insurance system is gradually growing in the aggregate public sources of financing of the health care system. If in the year 20022003 the ratio between regional consolidated budget expenditure and compulsory health insurance contributions was 54 to 46, then in the year 2004 this correlation was 50 to 50 (Table 2).

Table Consolidated budget appropriations and compulsory health insurance contributions in the Vologda oblast, in per cent 2002 2003 Consolidated budget 54.2 53.8 50.Compulsory health insurance 45.8 46.2 50.Total public sources 100.0 100.0 100.Overall public sources, in million rubbles 2,482.4 3,040.1 3,842.Per capita regional health care funds appropriated from all public sources in the years 2002 and 2004 were a little bit less, and in the year 2003 a little bit more than the all Russia average (Table 3).

Table Public sources of health care financing in the Vologda oblast and the Russian Federation in the year 2002 2003 Russian Russian Russian Vologda Vologda Vologda Federa Federa Federa oblast oblast oblast tion tion tion 1. Health care budgetary funds of the subjects of Russian Fed 1,124.8 1,192.7 1,348.1 1,389.6 1,530.3 1,968.eration per capita, in rub bles 2. Compulsory health insur 918.4 926.7 1,159.7 1,087.2 1,531.5 1,194.ance funds per capita, including Including uni fied social tax 605.2 536.5 692.8 625.9 856.7 799.per capita, in rubbles Insurance con tributions to compulsory health insur ance funds for 226.5 283.3 348.3 348.7 498.6 394.the nonworking citizens per capita, in rub bles Total budget ary funds and compulsory 2,043.2 2,119.4 2,507.8 2,476.8 3,061.8 3,162.health insur ance funds Source: Compulsory health insurance in the Russian Federation in 2003. Federal Com pulsory Health Insurance Fund Structure of funds appropriated under the consolidated budget of the Vologda oblast for the health care system is similar to all Russia av erage indicators. As can be seen from Table 4, about 80 per cent of the consolidated budget of an average Russian region falls on the mainte nance costs of medical institutions. Out of that amount nearly 50 per cent falls on the maintenance costs of the hospitals. Considerable dif ference with all Russia indicators the Vologda oblast posted only in the share of expenditure on delivery of outpatient services. Although in the year 2003 this difference shrank considerably. Expenditure on compul sory health insurance of the nonworking population during this period was growing across Russia. However, this expenditure does not sur pass 20 per cent.

Table Structure of funds appropriated under the RF consolidated budget for the health care system, in per cent 2001 2002 Russia Russia Russia Vologda Vologda Vologda as a as a as a oblast oblast oblast whole whole whole Health care 84.8 85.0 82.9 83.2 78.6 81.Departmental expenditure on 84.8 85.0 82.9 83.2 77.7 79.health care Hospitals, maternity hospitals, 50.7 56.0 46.0 54.6 44.0 53.clinics Policlinics, dispensary, diagnostic 5.2 10.1 7.1 10.2 6.7 8.centres Obstetric centres 2.8 1.3 3.3 1.5 2.9 1.Blood transfusion centres 1.8 0.9 1.7 0.9 1.8 1.Baby houses 1.6 0.9 1.8 1.2 1.7 1.Ambulances and first aid stations 5.7 3.7 6.0 3.9 5.4 3.Sanatoria for consumptives 0.8 0.6 0.6 0.6 0.6 0.Sanatoria for children and teen 0.9 0.7 0.8 0.7 0.7 0.agers Sanatoria, resort centres and 0.0 0.1 0.0 0.1 0.0 0.holiday centres Other institutions and undertak 13.2 8.9 13.6 8.2 12.4 7.ings in public health Target expenditure on providing expensive types of medical ser 0.5 0.3 0.3 0.3 0.4 0.vices to the citizens in the Russian Federation 2001 2002 Russia Russia Russia Vologda Vologda Vologda as a as a as a oblast oblast oblast whole whole whole Territorial medical associations 1.5 1.4 1.7 0.7 1.1 0.Sanitary epidemiological sur 0.6 0.3 0.3 0.3 0.4 0.veillance Budgetary funds appropriated for compulsory health insur ance of the nonworking popu 14.6 14.6 16.7 16.5 21.0 18.lation transferred to compul sory health insurance funds Total in the branch "Health care, sanitary epidemiological surveil 100.0 100.0 100.0 100.0 100.0 100.lance and compulsory health in surance of nonworking population" Source: Ministry of Finance of Russian Federation.

In depth study of the economic structure of budgetary expenses on the health care system in the Vologda oblast and in average Russian region is presented in Table 5. Over fifty per cent of these expenses make up expenses on labour remuneration and payroll (payroll taxes), medication, dressing materials, etc., which according to Methodologi cal recommendations must be financed from compulsory health insur ance funds.

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