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Experts had predicted that the new system of provision of medicines would be associated with great corruption risks well before it became operative in January 2005.The compilation of the list of medicines provided to the lgotniki, the possibility to amend it during the calendar year, picking distributor pharmaceutical organizations (that consequently were granted with the monopoly right to supply medicines to regions) by means of qualification selection, without tender procedures, nascent and nontransparent mechanisms of control over justification for suppliers prices due to the government registration and marginal premiums set by distributors of medicines, as well as over the match between volumes of paid for and actually satisfied prescriptions have generated opportunities for scheming kickbacks within the new system of medicines supplies. What the law enforcement agencies have done to date provides evidence that someone apparently tried to capitalize on such possibilities.

However, regardless of the corruption scandal, it was already last summer that the system of supplementary provision of medicines to the lgotniki faced grave financial challenges.

In the 2005 federal budget, the costs of payments for medicines designated to the lgotniki were set at the level of Rb. 50.8 bn., while the costs of medicines provided to them made up Rb. 44.0 bn.

Lgotniki could choose for the year of 2006 between a package of social services, including provision of medicines, and a cash compensation equal to the cost of that. At the end of the day, the number of those who opted for the package of social services fell to 51.4% of the number of individuals included in the Federal Register of those entitled to the government social aid (see the Table).

The amount of Rb. 29.1 bn. was allocated for the 2006 budgets to fund the program of supplementary provision of medicines to the lgotniki. The cuts in funding vis--vis 2005 matched the reduction in the number of individuals that had decided to stay on in the program. Despite a twofold contraction in their number, the volume of prescribed medicines continued to grow. In the first half 2006 the number of prescriptions amounted to 66.0 mn., or at 8% more than in the respective period of 2005 (61.mn.), while the price volume of bills by distributors for delivered medicines accounted for Rb. 27.bn. By the end of the third quarter, the volume of the bills exceeded Rb. 45.8 bn.

What were the causes for that Corruption practices and price rise for medicines to some extent have contributed to the mismatch between expenditure obligations of the system of supplementary provision of medicines and its initially approved budget. There are numerous evidence that prices for medicines provided (free of cost) to the lgotniki exceeded those for analogous medicines sold on the market. The RF Ministry of Healthcare and Social Development recognizes this is as a mass practice, As of the end of 2005 the Pension Fund of the Russian Federation has invested in the government securities RUR 81.1 bln. If all assets were invested in OFZ, their share in OFZ in circulation should be higher by 11.2 %.

however, it has failed to publish aggregate data on the price trends for medicines paid for within the system of supplementary provision of medicines22.

Table The Number of Individuals Entitled to the State Social Support from the Federal Budget As of 01.01.2005 As of 01.01.2006 As of 01.01.The number of citizens included into the Federal Register of individuals 14456 16301 16878* entitled to receipt of the state social support The number of recipients of the pack12584 8373 age of social services, total, as Thos.

The proportion of recipients of the package of social services in the num87,1 51,4 49,ber of citizens included into the Federal Register, as % *As of October 1, Source: the RF Ministry of Healthcare and Social Development;

It would be more accurate, however, to attribute the rise of the financial deficit to other reasons. The major defect of the system is the absence of explicitly set forms of regulation of volumes of consumption of medicines. Physicians have been granted with the right to set volumes of prescribed medicines on their own. The Ministrys leadership explained they were keen to exhaust the lgotnikis delayed demand for much-needed medicines and to find out, by means of experiment, their actual need in medicines. The Ministry also argued, with a great deal of confidence, that the funds allocated in the frame of the 2005 budget, which appeared 6.4 times greater than the 2004 overall volume of expenditures on provision of the lgotniki with medicines (Rb. 7.9 bn), would be sufficient to meet needs of this particular category of the population in medicines treatment. Indeed, in 2005 the funds were sufficient to fulfill the program.

It is worthwhile noting, however, that in reality roughly one-third of regions, anyway, practiced regulation of volumes of prescribed medicines, with the final volume of therapeutic-prophylactic institutions applications for supply of the medicines designated for the lgotniki being fixed in the process of their negotiations with superior healthcare agencies23. Furthermore, in 10% of cases the said institutions were guided by marginal limits (quotas) set for them from the top.

The declared for the lgotniki right to receive necessary medicines, which was limited just by their approved list and a physicians content to prescribe them, has fueled the spinning of the spiral of demand for free medicines. The year of 2006 has exposed yet another defect of the newly established system. The noted choice between cash and in-kind medicines provision generates the problem of negative choice, which forms a classical problem of the insurance sector. Those lgotniki that had seldom called on a physician for medicines opted for cash, while those who had consumed a lot of medicines, or appeared dangerously ill, or been afraid of aggravation of his (her) sickness etc. did not refuse medicines provision.

Meanwhile, the amount of the average cost of the medical part of the social package (provision with medicines and rehabilitation services), which is payable to all those who dropped that (in 2006 it was worth a total of Rb. 424 per capita) was computed proceeding from the costs of medicines provision for most of the lgotniki. With nearly a half of them with greater needs in medicines still being stuck to the program, the required costs of their provision will be greater than the cost of the package multiplied by the number of those staying on with the program.

Information of the conduct of monitoring of implementation of Federal Statute of August 22, 2004 # 122-FZ On introducing amendments to the Federal Statute On general fundamentals of organization of legislative (representative) and executive bodies of state power of Subjects of the Russian Federation and On general fundamentals of organization of local self-governance in the Russian Federation over the first 9 months of 2006.

See database entitled Organizatsia finansirovania i upravlenia zdravookhranniem v regionakh Rossii The cumulative effect of all the factors was such that expenditure obligations of the program of supplementary medicines provision of the lgotniki over the first 9 months of 2006 have exceeded the last years ones. To cover the respective deficit, it is envisaged to earmark an additional Rb. 10 bn.

from the 2006 federal budget. However, this amount will fail to bridge the gap and the government will be compelled to spend at least Rb.15 bn. from the 2007 budget to compensate for distributors costs incurred in 2006.

Another emergency measure is making cuts in the list of medicines supplied to the lgotniki. It was reduced roughly by 15%, as of November 1, 2006. More specifically, 74 international unpatented names of medicines, including those for treatment of AIDS, tuberculosis etc. were excluded from the list - they will be supplied in the frame of the priority national project and the federal targeted program Prevention of and fight with diseases of social origin. The new list approved by the RF Ministry of Healthcare and Social Development currently contains 436 names of medicines. It is also intended to establish a special control over prescription of some 78 medicines that treat blood diseases, oncology, disseminated sclerosis, and cardio-vascular system diseases.

The general avenue of such measures appears quite justified, however, the experience of organization of medicines provision up to 2005 suggests that the price for an equilibrium state of the system of supplementary medicines provision (that is, a stable balance between its obligations and their funding) will be a substantial and uneven fall in the level of protection of certain categories of the population in within the lgotniki group. The fall will be fueled by the necessity to carry the burden of costs of medicines provision.

S. Shishkin Evaluative summary of the initial results of the functioning of the accumulative mortgage system for providing the RF military personnel with housing This paper analyses the potential long-term effects of the first two years during which the accumulative mortgage system (AMS), designed to provide military personnel with housing, has been functioning after having been launched in the year 2005. By applying the method of mathematical modeling, we tested several variants of the AMSs further operation.

The second year of the AMSs existence is nearly over. During the first year, approximately 22.thousands of military personnel joined the system24. So far, no complete data have been made available concerning the total number of persons who joined the AMS in 2006, which is only natural. It can be expected, however, that their number, according to a variety of sources, will be approximately 30,000. Thus, the process of the systems development has been slower than that declared when the system was first put in operation. So, what could be the possible reasons for this slowdown The promised annual contributions in the estimated amount of 37,000 roubles were received in due time.

These monies have been indexed, with due regard for the inflation rate, by the results of the year 2005.

As a result, the total amount of contributions in 2006 will be equal, according to the data published by the Sociological Center at the RF Ministry of Defense, to approximately 40.600 roubles. But on the other hand, the military can see that the indexation, while corresponding to the rate of inflation, does not, however, correspond to the growth rate of housing prices, which is considerably higher than that of the growth in the consumer price index. According to the Director of the Central Organizational Planning Administration for Capital Construction, Alexander Rylskii, because of the high growth rate of the cost of housing, in recent years the purchasing power of the annual accumulative contributions made by the AMS participants has been reduced from 3.1 m to 1.52 m 25.

According to the information reported by Frantz Klintzevich, member of the Presidium of the General Council of the United Russia party and member of the RF State Dumas Committee for Defense, and posted on the United Russias website on 18 January, 2006.

Mukhin V. Armeiiskaia ipoteka zatreshchala po shvam. (The Armys mortgage system is bursting at the seams.) // Nezavisimoe voennoe obozrenie [Independent Military Review]. 2006. 4 August.

Another significant negative factor, which the CEOs in the Ministry of Defense who are responsible for the management of the AMS funds prefer not to mention, was the absence of any income on the investment of the accumulated funds as shown by the results of the year 2005. No such income, most probably, can be expected by the results of the year 2006, either.

In this connection, it has become necessary to estimate the degree to which the factor of such an inefficient management of investments may negatively influence the provision of military personnel with housing within the AMS framework (in addition to the factors of inflation and growing housing cost).

The estimations were performed by applying the previously created mathematical model26. For the sake of simplicity, we estimated the effect of the inefficient management of investments only on those military personnel who joined the AMS in 2005 and 2006. This approach has made it possible to focus our analysis on the presently existing participants in the AMS, and to do it without taking into account the connection between their accumulated funds with the accumulated funds of those military who will join the AMS after the year 2006. However, it should be well understood that the interdependence of the interests of the AMS participants is high. It is capable of producing yet another negative factor, because the lack of any growth in the accumulated funds owned by those who have previously joined the AMS may, to a substantial degree, diminish the interest of the other military in the possibility of joining this system.

Below, in Fig. 1, the changes in financial indices are shown as progressive total, which were to generate a certain investment income in the event of an efficient management of the accumulated funds (as estimated). Since the yield on the AMS is delayed until some future date, we applied the model to a sufficiently lengthy period of time. Years are represented by X-coordinates. The summary indices of the main financial flows are marked as follows:

o M the monies to be received by military personnel in the form of housing by means of accumulation (after retirement) or by mortgage (before retirement);

o In system the monies being kept in the accounts of military personnel during the accumulation process;

o Ib the incomes of mortgage banks from crediting those military personnel who will prefer the mortgage variant ;

o Im that part of the income from investing the accumulated funds which represents the asset managers profit;

o Idle turnover the monies which will be annually returned to the budget from the accounts of those military personnel who have retired from the army without the right to be provided with housing.

While the model was being built, it was assumed that the rate of withdrawal of military personnel from the system without being provided with housing will be rather high (mainly at the expense of the soldiers and sergeants on contract service), which is quite compatible with the personnel policy being currently implemented.

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