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Spending reviews - Ida Hohnjec, Croatia

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This presentation was made by Ida Hohnjec, Croatia, at the 3rd Health Systems Joint Network meeting for Central, Eastern and South-eastern European Countries held in Vilnius, Lithuania, on 25-26 April 2019

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Spending reviews - Ida Hohnjec, Croatia

  1. 1. Vilnius, April 2019 SPENDING REVIEW case of Croatia 2014 Ministry of Finance
  2. 2. Ministarstvo financija Spending Review - objectives 1. Fiscal Consolidation  reduce the level or growth of public expenditure 2. Allocative Efficiency  shift expenditure from lower priority to higher priority sectors 3. Value for Money  increase output per input unit within a given sector
  3. 3. Ministarstvo financija Croatia…the global crisis exposed macroeconomic imbalances  output loss over the prior five years - 12% of 2008 GDP  unemployment rate more than doubled (17% in 2013) youth unemployment at 50%  fiscal deficits increased to an average of 6% since 2009 and public debt doubled 2.8% 6.0% 6.2% 7.8% 5.3% 5.3% 5.4% 39.6% 49.0% 58.3% 65.2% 70.7% 82.2% 86.6% 39% 49% 59% 69% 79% 89% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 2008. 2009. 2010. 2011. 2012. 2013. 2014. %GDP General government deficit - ESA 2010 (lijevo) Public debt - ESA 2010 (desno)
  4. 4. Ministarstvo financija Croatia Spending Review – motive and objective  Decision on the existence of the condition of the excessive budget deficit for the Republic of Croatia - adopted by the EU Council on January 28, 2014  Council Recommendations suggested the dynamic of fiscal adjustment with an aim to reduce the state budget deficit at the level below 3% by 2016 (2014 - 5,7% GDP)  one of the measures within Croatia’s Plan of Implementation of Country-Specific Recommendations for 2014 was to carry out the Spending Review by March 2015  therefore the focus of the Spending Review was mostly on one objective - fiscal consolidation!
  5. 5. Ministarstvo financija Preparation for implementation  In cooperation with the World Bank and IMF, Ministry of Finance organized 2 Workshops  best practice and experience of other countries  methodology, data needs and analytical tools  recommendations based on their experience
  6. 6. Ministarstvo financija Key documents of Spending Review Process 1. Decision on the Performance of the Spending Review 2. Decision on the appointment of the presidents and members of the Spending Review Committees 3. Guidelines for the Spending Review Implementation 4. Final Reports on the in-depth analysis of the state budget expenditure
  7. 7. Ministarstvo financija Decision on the Performance of the Spending Review  Objective and Target Savings  Categories which were a subject of the Spending Review  Committees for conducting the Spending Review  Deadlines for the finalization
  8. 8. Ministarstvo financija Objective and Target Savings (Decision)  the Spending Review shall be carried out with an aim to produce a version of a package of measures  that will lead to the reduction in total public spending  while increasing the efficiency of budget funds spending  with the smallest possible negative effect on the existing level of public services  reduction of expenditures for at least 10 percent annually  in relation to the current plan for 2014 by categories which are subject of the review
  9. 9. Ministarstvo financija Categories which were subject of the Spending Review (Decision)  Spending review covered the following categories: 1. expenditures for employees paid from state budget 2. subsidies (not taking into account subsidies in agriculture) 3. health care system 4. business operations of agencies, institutes, funds and other legal persons with public authorities 5. tax expenditures
  10. 10. Ministarstvo financija  the amount of expenditures included in the Spending Review equaled 21.7% of GDP almost half of all the general government expenditure for the year 2014 Expenditure category Expenditure amount (HRK 000) % GDP Wage bill, without health care and agencies 20,541,909 6.3 Subsidies, except for agriculture 2,810,193 0.9 Expenditures for health care 23,591,684 7.2 Tax expenses (2013/2014) 13,520,930 4.1 Agency expenditure 10,343,573 3.2 Total 70,808,289 21.7 Objective and Target Savings (Decision)
  11. 11. Ministarstvo financija Committees for conducting the Spending Review (Decision)  for each category, a commitee was founded  each of 5 committees consists of a president and 9 to 13 members  presidents of the committees - prominent professionals and scientists with expert knowledge and experience in the field of public finance (Institute of Economics, Institute of Public Finance)  members of the committees  from among civil and public servants  at least one member of each committee is a representative of the Ministry of Finance
  12. 12. Ministarstvo financija Central Committee (Decision)  coordinates and supervises the performance of the committees  president (from MoF) and 6 members, appointed by the Government of the Republic of Croatia, from among civil servants at leading positions in: • Ministry of Public Administration • Ministry of Health • Ministry of Economy • Ministry of Science, Education and Sports • Ministry of Maritime Affairs, Transport and Infrastructure • two members from the Ministry of Finance (one being the president at the same time)
  13. 13. Ministarstvo financija Central Committee (Decision) Tasks:  Verifies whether the statements/reports have been prepared in accordance with the Guidelines  Approves the reports  Submits the reports to the Croatian Government for its consideration
  14. 14. Ministarstvo financija Guidelines for the Spending Review Implementation  The Guidelines consist of: 1. General part 1.1. Spending Review Objectives and Subjects 1.2. Responsibilities and tasks of the presidents and members of the Committees 1.3. Performance and decision-making method to be used by the Committees 2. The content of the reports on the spending review findings 3. Method and deadlines for the submission of the reports on the spending review findings 4. Methodology on making the reports on spending review findings for each Committee
  15. 15. Ministarstvo financija Final Reports  The Central Committee received draft reports of commissions  In the cases when the committees themselves could not define the packages of measures leading to the reduction of expenditure by 10%, the Central Committee supplemented the reports with additional measures  The Central Committee prepared Final report on the in-depth analysis of state budget expenditure
  16. 16. Ministarstvo financija Commission Analysis Scope Health care system  Operation of: • budgetary users in the health care system • the Croatian Health Insurance Fund (CHIF)  Activities of the: • primary health care • health care in hospitals • supplemental health insurance • specialist and conciliar health care • occupational health care • emergency medical assistance and ambulance transport • transfusion medicine • treatment of foreign insured persons in the RC and the treatment abroad for persons insured in the RC
  17. 17. Ministarstvo financija Commission Analysis Scope Health care system  Expenses regarding: • sick leave compensation • vaccines • residencies • very expensive medicine • prescription medicine • orthopaedic devices and appliances • transplantations in hospitals  Capital expenditure in the health care system
  18. 18. Ministarstvo financija Commission Analysis Scope Health care system  The analysis included detailed spending of 10 budgetary users in the health care system: • University Hospital Centre (KBC) Split • University Hospital Centre (KBC) Zagreb • University Hospital Centre (KBC) Osijek • University Hospital Centre (KBC) Rijeka • University Hospital Centre (KBC) Sestre Milosrdnice • Clinical Hospital Centre (KB) Dubrava • Clinical Hospital (KB) Merkur • Children's Hospital • Orthopaedic Hospital Lovran • Hospital for Infectious Diseases
  19. 19. Ministarstvo financija Conclusions given in the Final report  Difficulty in proposing measures • each analysed item is linked with the rights of insured persons who realise these rights through rights to health care, i.e. monetary compensation  Non-transparency in presenting the health care cost amount financed from public sources • there is no central place where data on the health care sector's costs and revenues are collected  Health care cost amount financed from public sources is, by comparison, higher that the EU average • Croatia is spending much more than other countries in the region with similar level of GDP, but it is achieving only average results
  20. 20. Ministarstvo financija Conclusions given in the Final report  Non-transparency in the payroll system and human resources management • there is no central point of wage bill management in the health care system, nor the central control point of legal framework implementation Therefore, problems arise: • special working conditions apply to absolutely all hospital employees, thus bringing into question the concept of special working conditions • for health workers with the academic degrees Doctor of Science and Master of Science, their salary supplement for academic degrees is charged twice • all CHIF employees receive a salary supplement for special working conditions (4-10%), although they should be made equal with other public services • in the September-November 2014 period health care institutions in Croatia paid HRK 10 million on the basis of their own/internal by-laws
  21. 21. Ministarstvo financija Conclusions given in the Final report  Irrationalities regarding other cost types • high costs of medicines • low level of transparency regarding the approval and usage of particularly expensive medicines • number and categories of people whose supplemental health insurance policies (SHI) are covered from budget resources is too high (unnecessary demand factor is gone) • the participation amount is too low • income level qualifying an individual for SHI policy coverage from the budget is much higher than of those applying in the social welfare system • services of ambulatory units or day hospitals are barely used, and their wider usage could achieve potentially significant budgetary savings
  22. 22. Ministarstvo financija Packages of measures – Health care System 1. Reduction of expenditures for health care employees 2. Activities within the framework of the Croatian Health Insurance Fund (CHIF) and the Ministry of Health 3. Implementation of hospitals' strategic plan and reduction of capital spending of the Ministry of Health
  23. 23. Ministarstvo financija Package of measures 1 – Healthcare System Package of measures 1: REDUCTION OF EXPENDITURES FOR HEALTH CARE EMPLOYEES 1) Reduction of salary increase for past work from 0.5% to 0.3% per annum – savings of HRK 160 million 2) Revision of the health care sector collective agreement (SCA). Clear and unequivocal definition of items in the SCA that generate the highest cost. Estimate of the financial impact of each provision of the SCA, continuous monitoring and control of application of the SCA 3) Salary calculation according to the actual number of work hours and improved organisation of business processes in order to reduce the cost for overtime hours – savings of HRK 21.7 million 4) Determining the objectives which the hospital management has to achieve and financial incentives (bonus/malus) for hospital management structures based on their business performance 5) Termination/reduction of salary supplements for special working conditions to non-medical staff in hospitals, taking into account the specific characteristics of the tasks they perform – savings of HRK 62.5 million 6) Termination/reduction of salary supplements for special working conditions for administrative staff in the Croatian Health Insurance Fund, taking into account the specific characteristics of the tasks they perform – savings of HRK 14 million
  24. 24. Ministarstvo financija Package of measures 1 – Healthcare System Package of measures 1: REDUCTION OF EXPENDITURES FOR HEALTH CARE EMPLOYEES 7) Termination of salary supplements for physicians' professional liability for all physicians whose costs of professional liability insurance are covered by the employer – savings of HRK 135 million 8) Termination of the double charging of salary supplements for doctoral and master's degrees – savings of HRK 50.5 million 9) Revising hospitals' and the Croatian Health Insurance Fund's plans and requesting an explanation for increased salary items compared to the previous period – savings of HRK 96 million 10) Introducing benchmarks, i.e. determining an acceptable ratio of administrative and nonadministrative staff according to the number of occupied beds, taking into account the specific characteristics of particular institutions. Benchmarks should be defined at the level of hospital and department 11) Termination of provisions in the institutions' internal by-laws which are related to employees‘ salaries paid from the state budget, which are not in line with the Salaries Act, BCA (basic collective agreement), SCA and the Regulation on job-complexity coefficients and job titles – savings of HRK 40 million 12) Payment of all types of income and benefits through the central payroll system for all majority state-owned health institutions TOTAL: HRK 661.93 million
  25. 25. Ministarstvo financija Package of measures 2 – Healthcare System Package of measures 2: ACTIVITIES WITHIN THE FRAMEWORK OF THE CROATIAN HEALTH INSURANCE FUND (CHIF) AND THE MINISTRY OF HEALTH 1) Continuous control over temporary inability to work (sick leave) – savings of HRK 50 million 2) Introducing alternative sources of financing specialist training – savings of HRK 35 million 3) Continuous monitoring of prescribing medicines and a reduction in the price of medicines in the medicine price calculation procedure – savings of HRK 100 million 4) Reducing the plan for material expenses and costs of the Croatian Health Insurance Fund for 2015 – savings of HRK 11 million 5) Reducing the plan for material expenses and costs of state-owned health institutions in 2015 – savings of HRK 40 million TOTAL: HRK 236 million  Due to tight deadlines, the majority of proposed measures were short-term measures
  26. 26. Ministarstvo financija Package of measures 3 – Healthcare System Package of measures 3: IMPLEMENTATION OF HOSPITALS' STRATEGIC PLAN AND REDUCTION OF CAPITAL SPENDING OF THE MINISTRY OF HEALTH 1) Implementation of the National Plan for the Development of University Hospital Centres, University Hospitals, Clinics and General Hospitals in the Republic of Croatia 2) Rationalisation of capital expenditures related to implementation of the National Plan for the Development of University Hospital Centres, University Hospitals, Clinics and General Hospitals in the Republic of Croatia from 2014 to 2016 3) Rationalisation of capital expenditures for medical equipment by implementing consolidated public procurement Rationalisation of capital expenditures related to implementation of the Framework Programme for Construction, Upgrading and Reconstruction of Public Buildings Under a Contractual Form of Public Private Partnership (PPP), adopted by the Croatian government.
  27. 27. Ministarstvo financija Additional Package of measures  The Central Commission considered that there are no three, but rather one package of measures (including all mentioned measures) which needs to be further improved with the following recommendations:  Actual supply centralisation for standardised goods and services, as well as medical material, including relying on the government office for public procurement and their contracts; reduction in the number of administrative staff in hospitals who have until now been responsible for supply  Control measures regarding consumption of medicines and procurement of medical technology – savings estimate from the new referent prices, analysis of issuing certain medicines per patient, assessing health technology and its usage  Conducting clinical protocols for a greater referral to ambulatory care – savings estimate per therapy and introducing ambulatory treatment protocols
  28. 28. Ministarstvo financija Additional Package of measures  Introducing a differentiation between acute care and long-term hospital services, and transferring long-term care to the social welfare system with private participation in costs according to proxy-means testing  Changes to insurance baskets in order to limit the scope of medical treatment in thermal treatment centres and to increase participation in costs of such services – introduce total cost coverage for cost pertaining to accommodation  Increase participations for non-preventive services, while increasing the annual cap per person and per family (the current monthly limit amounts to HRK 2,000)  Rationalisation of people categories to whom supplemental health insurance policies (SHI) are covered from the budget resources and the implementation of proxy means in determining the exceptions  Reducing the physical space in hospitals in which less than 50% of their capacities are occupied and leasing of extra spaces
  29. 29. Ministarstvo financija Adopted measures and efforts  Decision on reducing the number of agencies, institutes, funds and other legal persons with public authorities  Guidelines for the establishment of standards of material costs • all budgetary and extra-budgetary users exceeding the determined standard expense ceiling for a certain group of expenditures were obliged to cut these expenditures or provide explanations for their increase  Functional merging of hospitals – it should lead to rationalisation of costs and better access to healthcare
  30. 30. Ministarstvo financija Adopted measures and efforts  All state-owned hospitals are integrated in the state budget • their revenues and expenditures can be seen in the plan as well as in the budget execution report • salaries are carried through Central payroll system (COP)  Specialist training financing – through EU funds  The healthcare contribution rate has risen (15% 16,5%)  E-health project – management of the organizational structure of healthcare system implementation as well as upgrading the billing system from hospitals
  31. 31. Ministarstvo financija National Reform Programme 2019  Among three main objectives set in NRP 2019 is Sustainability of public finances which includes a reform area: Ensuring financial stability, sustainability and quality of the healthcare system  Ensuring the financial stability, viability and quality of healthcare is planned through enhanced management of human and other hospital resources, the use of IT to improve organisation, cost planning and control, and by increasing the availability and quality of health care  Structural and organisational measures will be launched in the prevention, diagnosis and treatment of malignant diseases. According to Croatian Institute of Public Health data, 22,503 malignant diseases were recorded in 2015 and data on mortality from 2017 show that 13,638 people died of them
  32. 32. Ministarstvo financija National Reform Programme 2019 Measures:  Further development of unified procurement in healthcare  Improving primary healthcare  Development of human resource management policy in healthcare  Digital transformation of the healthcare system  Functional merging of hospitals  Improving health care in the field of oncology
  33. 33. Ministarstvo financija Some lessons learned  political support is important for the realization of recommendations based on Spending Review results  start with a Spending Review at the beginning of Government’s mandate (leaves enough time to implement the reform)  spending review committee must consist of the best civil servants (problem: these civil servants are usually the busiest)  combine external experts with internal knowledge  final reports should be published - transparency  establish a clear baseline  take a medium term perspective
  34. 34. Ministarstvo financija Thank you for your attention!

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