PUBLIC EXPENDITURES IN GEORGIA | STRATEGIC ISSUES AND REFORM AGENDA
likely limit the market for the sector. One of the key rationales for the government to move to a single purchaser system from 2014 is the opportunity to make significant savings as the private companies were running high profit margins as compared to the international standards, which is close to 10 percent. The data released by the regulatory agency confirms that in earlier years the net profits were in the range of 30-40 percent for the sector as a whole. The profit margin had reduced to 18 percent in 2012 (Figure S.8)16. Going forward, there are many uncertainties on program implementation. A key issue is the capacity of the SSA to act as a purchaser of health care services under the program. The first months of implementation have been characterized by an open-ended reimbursement of provider claims, without adequate costing information, standardized pricing of services, contractual arrangements, or oversight. SSA’s claims management capacity is currently improving, but from a low baseline. It has recently been decided that private insurance companies would no longer have a role in purchasing care for the state-funded programs after their current contracts expire during the course of 2014. In principle, an active single purchaser such as the SSA can keep costs down on the basis of its monopsony power, but SSA’s capacity to fulfill this potential is uncertain at present. Moreover, attempts to create such an institution in Georgia have failed in the past. A final risk is that the quality of care in Georgia is often inadequate, and unless there are concerted efforts to address this issue, efforts to translate the universal health coverage program into actual improved health outcomes will meet only limited success.
Several measures are needed to address the key implementation challenges and to ensure that the health budget is efficiently spent. First, there is a need to strengthen SSA’s implementation capacity. The current environment, with open-ended reimbursement on a fee-for-service basis with widely-varying prices determined by providers, should be replaced with contractual arrangements that define ex-ante some combination of prices, service volumes, and budget ceilings at the provider level. This would serve to impose a budget constraint at the provider level to help contain cost growth going forward. Initial steps have been taken to develop diagnosis-related groups as a provider payment mechanism, but implementation will take a long time and information requirements are substantial. As noted, improving quality of care is also essential to ensure better value for money of Georgia’s health care spending. Lastly, these efforts should be combined with outreach and information for the public, along with efforts to monitor and evaluate the reforms as they unfold.
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