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Government budget






Employers’ contributions to mandatory medical insurance






Total government expenditure (1 + 2)






Household expenditure on health care services






Household expenditure on medical drug purchases from pharmacies






Household expenditure on voluntary medical insurance






Total household health expenditure (4 + 5 + 6)






Total (3 + 8)





Source: estimated from data provided by the RF Statistics Agency and a report compiled by the Institute of Social Studies, Expenditure of the Russian Population on Health Care Services and Medicines (Sociological Monitoring Results), submitted to USAID, oscow, 1999.

An important result of these polls was the shattering of the myth that the population pays most of health care charges unofficially, directly into the pockets of doctors and nurses. Actually, underhand payments by the population for health care services accounted for a smaller part, some 23 per cent, of total household expenditure on health care services in 1998. The respondents described the remaining 77 per cent of their expenditure as official payments. Actually, though, a significant proportion of this expenditure must be listed as semi-official, or quasi-official, payments: health care institutions officially ask patients to pay for their services, which have to be provided free under the law.

The results of these polls lead to the conclusion that the health care system is adapting itself to dwindling public funding and replacing it with the patients’ money. Attempts are being made in some Federation members to legalize co-payments, despite their obvious contradiction to federal laws. For example, the health care department of the Perm Oblast administration ordered fixed fees to be charged for each visit to the doctor and for each day of hospitalization. Soon, however, after protests from the oblast procurator office, the order was retracted. In the Kaluga Oblast, co-payment by members of the public are provided for in the draft law on government guarantees of health care services to the Kaluga Oblast population. In the Republic of Karelia, 80 per cent of the pensions of retirees receiving hospital treatment is remitted to the health care institution concerned.

This is certain evidence that the time has come for constitutional guarantees to be revised and co-payments by the public for health care services to be introduced. In the prevailing situation, people have to pay for what are officially free health care services. This reality puts low-income segments of the population and families living out of big cities at a great disadvantage. People living below the subsistence level spend three times as much, in proportion to their incomes, on heath care services and medicines than the highest earning segment of the population. Moreover, people in low-income groups visit outpatient clinics less frequently than the well-to-do. Members of low-income groups remain in hospital for shorter periods than people in high-income groups.

The remaining gap between the constitutional guarantees of free health care services for the population and available government funding, therefore, leads in practice to replacement of government outlays on health care with private payments and to a greater social injustice.

A possible way to balance government guarantees and their financial backing is legalizing citizen sharing in financing public health care costs. There are several cost-sharing options:

1. Co-payment (supplementary payment) for health care services as they are provided to members of the population. The idea is that every time a patient visits the doctor (for outpatient clinic and hospital health care services) he pays a certain fixed fee that goes to the institution’s gross income. A possible co-payment scheme provides for charging for hospital and outpatient clinic services those who come from families whose earnings per family member are above the subsistence level. To balance the costs of existing health care services against their financing backing in this option, patients with above-average incomes would have to pay approximately 129 rubles (in 2000 prices) per day of hospitalization, 18 rubles per visit to the doctor, and 25 rubles for day-time hospital services.

2. Co-payment of MMI contributions by people in the work force. For example, an employee pays a certain percentage of his wage as contribution, in addition to that paid in by his employer, to the insurance fund. An employee would have to contribute about 4.54 per cent of his wage so the existing scale of emergency aid, outpatient clinic services, and hospitalization could receive adequate funding.

3. Determination of a minimal package of health care services and medicines, provided free to each patient, for every kind of disease. Health care services above the minimal package are to be paid for by either the patients themselves, in a definite proportion, or by their insurance companies under voluntary medical insurance programs. In this option, however, guarantees of free health care services may be maintained in full for low-income patients, the disabled, and some categories of chronically ill patients.

The third option is by far the most complicated from the viewpoint of preparatory work and monitoring. In contrast to the first two options, however, it leaves untouched, and even legalizes, the possibility of patients exercising economic control over the scale and quality of services provided to them. Should, however, the first or second option is adopted, the cost-sharing idea may simply result in patients paying an ever increasing share.

Regulation of the Drug Market

In the second half of 1999, the government adopted a series of measures to regulate the pharmaceutical market and general drug provision practices. Previously, government regulation in this area was merely confined to markups on drug prices. Federation members were free to set their own markup ceilings. It must be noted specifically that prices to which wholesale and retail markups were applied were those of the first wholesaler selling medicines purchased from domestic or overseas producers, rather that domestic producers’ disbursing prices or prices of imported medicines stated in customs declarations. First wholesaler prices (trading markups set by the first wholesaler) were not subject to any regulation. This maximum markup setting practice made price regulation measures largely meaningless. This explains the wide differences in prices of identical medicines within individual regions, as well as from region to region.

In 1997, imports accounted for 59 per cent of the Russian pharmaceutical market.3 In the wake of the August 1998 financial crisis, imports fell by 22 per cent, from $1.8 billion to $1.4 billion. Domestic pharmaceutical production declined, in dollar terms, in the same proportion, by 22 per cent, from $1.3 billion to $1.0 billion, because of the pharmaceutical industry’s heavy dependence on imported ingredients. As a result, the share of imports on the Russian pharmaceutical market was unchanged, while drug prices shot up by 208.5 per cent in 1998, far ahead of general consumer prices that rose by 184.4 per cent. Health care institutions were experiencing significant difficulties with obtaining medical drugs. The Government spent 15.4 billion redenominated rubles (from budget appropriations and MMI resources) to procure drugs in 1997, and Rb16.9 billion in 1998.4 Comparing these figure to the price index shows that, in physical terms, the volume of drugs paid for from public funds, nearly halved in 1998.

This motivated the Federal Health Ministry into looking for ways to step up government control over pricing on the drug market. Its efforts were in consonance with the Primakov cabinet’s general policy to tighten government regulation of the economy. On March 29, 1999, the Government adopted Directive No.347, "Measures of Government Control over Prices of Medical drugs." These price control measures applied to drugs contained in the list of vitally essential and critical drugs and medical items approved by the Federal Government in its Directive No.478 on April 15, 1996 for fiscal purposes. Producers of listed drugs are exempt from profit tax on the manufacture of these drugs. The list was expanded in May 1999 (by Federal Government Directive No.546 of May 20, 1999) and today it contains over 750 drug descriptions. These are international unpatented names, corresponding on the Russian market to some 6,000 trade names of a total of nearly 14,000 registered medical drugs. The prices of all domestically or foreign-made drugs included in the list are subject to official registration. Registration is to be effected by the Federal Health Ministry after the applicant has received approval of his price from the Russian Ministry of Economy. The Government’s directives have not affected the rights of executive government bodies in Federation members to set wholesale and retail markup on drug prices at their own discretion.

In practice, however, the registration process has been making a very slow headway. The Government’s Directive of March 29, 1999, required registration of producer prices of listed drugs to be completed within two months. By September 1999, however, only 170 trade names of medical drugs had been registered.

The requirement of drug prices to be registered, and even price approval, is not, by itself, at variance with the common practice in market economies. Various measures of government price control on the pharmaceutical market are applied in all West European countries. To judge how justified a particular regulatory mechanism actually is, it is important to take account of the adequacy of applicable legislation and the kind of influence it has on producers’ and distributors’ motivations.

Criteria to be used in price approval are imprecisely defined in the Government’s directives and bylaws of the Federal Ministry of Economy. In the case of domestically produced medical drugs, the applicant is required to file with the Ministry of Economy an economically substantiate support for his price, including output data and forecasts of the production scale, drug cost calculation, and book and planned profits. In the case of imported medical drugs, the applicant is to provide figures on the prices of his drug in the producer’s country and in other countries where it is registered, and drug sales data on the Russian market in the preceding half-year. Approval may be denied on such grounds as filing of false information or significant overpricing of the drug over its prices in other countries for commensurate transportation and storage costs. These vague criteria give broad scope for their arbitrary interpretation and, therefore, an opportunity for bureaucrats to capitalize on their official position.

Prices for domestically produced medicines are registered in rubles, while those for imports are set down in both foreign exchange and rubles. Prices in rubles are to be adjusted following publication of producer’s prices, at least once every quarter. This approach allows the registered price level to be brought up level with the inflation rate and encourages the producer to overstate his prices to prevent inflation-related losses.

Wholesale companies purchasing medicaments from foreign and domestic producers are now compelled to either fit their prices within the upscale markup brackets set by Federation members or claim a share in the redistribution of producer incomes.

In the end, the measures used to restrain prices and supply health care institutions with medicines may yield little effect, since producers and importers have a high stake in overstating their registered prices, helped in their ambitions by the existing registration mechanism. These apprehensions were confirmed with the commencement of official registration of prices for medicines: registered prices turned out to be an average 30 per cent above wholesale prices advertised in promotional publications.

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