What is the Program of Medical Guarantees?

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Funding the Program of Medical Guarantees

WHAT IS THE PROGRAM OF MEDICAL GUARANTEES?

The Program of Medical Guarantees (PMG) specifies the national health care benefit package and is funded through a single program in the central budget. Before the 2017 health financing reform, most of the medical services in Ukraine were funded through subnational governments (SNGs), which received earmarked health grants from the central budget and supplemented those amounts with local revenue. In this way, the centrally collected general taxes, such as the value-added tax (VAT), were allocated to around 800 regional and local budgets for oblasts, rayons, cities, and hromadas,1 creating a high degree of fragmentation. The core innovation of the reform was to pool most government health spending under a single central program executed by the national purchaser, the National Health Service of Ukraine (NHSU). This program covers purchases of medical services included in the PMG. The 2017 law defines the PMG as the description of medical goods and services fully funded by the state, so it is commonly understood as the specification of the national health care benefit package. At the same time, the PMG is also a program within the state budget that pays for most of the procurement of these services and goods. A portion of the PMG continues to be supplemented by SNGs through smaller local programs.

Although the reform has shifted most of the responsibility for PMG financing to the central government, SNGs are still expected to fund the cost of utilities out of local revenue. The NHSU purchases PMG services based on tariffs, which do not assume an explicit breakdown by cost components such as capitation, case rates, and global budgets. This represents a departure from the previous funding system, where facility budgets were approved and funded strictly by economic classification lines based on respective spending norms. At the same time, the law requires SNGs, as facility owners, to pay for the utility costs of the services in the PMG. This rule was introduced as a temporary measure against the backdrop of significant fiscal pressures on the central government following the 2014–15 economic crisis on the assumption that the NHSU rates were, in that context, insufficient to cover utility costs. Whether the rates were indeed insufficient remained a matter of judgment because the PMG costing methodology was not explicit in these first years. At the primary health care (PHC) level, capitation

payments introduced in 2018 were assessed to cover all recurrent costs, including utilities, and even provided some space for small capital investment, depending on the chosen organization of service provision. As a result, assigning specific cost components to the SNGs while keeping the NHSU rates deliberately broad in economic component coverage created risks of duplicating or underfunding services.

The SNGs also retain the right to supplement the current costs borne by the PMG. By introducing the PMG, the government pooled the responsibility for most of the curative health care financing at the central government level. However, in addition to the responsibility for utility cost coverage, the new arrangement allowed the SNGs to supplement other current costs of the PMG providers with local revenue. In this way, the SNGs received an opportunity to subsidize loss-making communal facilities, covering their deficits and debts.

The PMG is funded by the NHSU within a budget constraint voted by the Parliament, but this constraint is softened by the overlap in the assignment of financing responsibility with the SNGs. The annual allocation to the PMG is approved within the program-based budget law. The Parliament votes for the overall program allocation without disaggregating by individual components, and this overall program limit cannot change without amendments to the budget law.2 However, SNG supplementation of the PMG funding creates an overlap between the central and subnational financing assignment. On the one hand, this overlap makes it possible for the SNGs as the owners of local hospitals to cover their deficits and motivates the SNGs to address inefficiencies in hospital service delivery. On the other hand, the possibility for the SNGs to bail out inefficient hospitals is a potential barrier to achieving efficiency gains through the hard budget constraint that would be imposed if there were only a central government allocation.

Services already included in the PMG and those to be transferred into the PMG in the future account for at least three-fourths of government-consolidated health expenditures, with the rest going to preventive health, administration, and research. The PMG was launched in 2018, initially covering only PHC services. On April 1, 2020, it was expanded to include specialized and emergency care as well as the Affordable Medicines Program (AMP), which pays for outpatient medicines. In 2020, this expanded benefit package is estimated to have consumed 68 percent of overall consolidated health spending. As illustrated in figure 2.1, this amount included 53 percent spent on the PMG by the NHSU and 9 percent spent by the SNGs to fund specialized and emergency care during the first quarter when it was not yet pooled under the PMG and was financed through a health grant. It also included 6 percent paid by the SNGs to directly cover utility costs associated with the PMG; although utility payments are not pooled through the NHSU, they represent expenditures on services included in the PMG package. Moreover, the reform assumes that a range of highly specialized curative services currently funded through the Ministry of Health (MoH) and other central agencies would be ultimately absorbed by the PMG; their approximate cost in 2020 was around 5 percent of consolidated government health spending. Combined, all these PMG and proxy-PMG services take up 73 percent of consolidated health spending. This does not include capital costs, which are paid by the local governments that own facilities supplying PMG services—around 6 percent of consolidated health spending—and MoH investment in the highly specialized public hospitals reporting to the ministry.