Evaluating regional health care financing

• Abstract
• Purpose of health policy or idea
• Characteristics of this policy
• Political and economic background
• Purpose and process analysis
• Expected outcome
• References

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Abstract

The effects of the new general regional financing system and the transfer of health to the autonomous communities seem to generate a considerable capacity for innovation and reponse to health care needs. We evaluate main changes of a proposal consisting of fiscal co-accountability by including health in general community financing. Greater coordination costs are imposed, and regional financing is based on a per-capita basis, even though regional per capita expenditure differences still exist.

Purpose of health policy or idea

The report examines the effects of the new general autonomous communities (regional governments) financing system in Spain and the transfer of health powers to these communities.

Two years in place now, this is an interesting moment for the evaluation of the system implemented in 2002. Moreover, general elections took place recently, and a new government (socialist party) will be in power during 2004; meaning that the system could be changed. It is also worth mentioning that there have been important discrepancies among the central government and those of some regions, concerning the financing of health services.

In this setting, we evaluate the main changes of the system, which include a stronger fiscal co-accountability by including health in general system of autonomous community financing, and the design of guarantee mechanisms that will assure the proper implementation of the reforms started in 1986 with the Health Act and recently with the Cohesion Act in 2003 (for the last one, see report n.1, year 2003, "Cohesion Act").

Higher regional health budgets

One of the results of the new fiinancing system and the transfer of health powers to the remaining 10 autonomous communities (all 17 of them now have health responsibilities) seems to be an enlargement of the regional budgets dedicated to health. Another outcome seems to be greater capacity for innovation and response to the health care needs of  the population.

Main points

Main objectives

The Spanish Minister of Health has reformed the autonomous community health funding in order to impose the fiscal co-accountability by including health in general autonomus community financing.   

Type of incentives

This new agreement uses a "fiscal room" process as a result of some technical adjustments on a capitative finance basis. In fact, the new political agreement on financing of regional implies to increase the costs of coordination in the Spanish autonomous communities with health care powers.

Groups affected

Central and regional governments and, patients

Innovationsgrad	traditionell		innovativ
Kontroversität	unumstritten		kontrovers
Strukturelle Wirkung	marginal		fundamental
Medienpräsenz	sehr gering		sehr hoch
Übertragbarkeit	sehr systemabhängig		systemneutral

The last 25 years have supposed for the Spanish National Health Service their vertebration and development. Important changes occurred in the most recent past, however, numerous face queries to the future, related with the aspects treated in the previous sections.

With a view to health care, the new model should allow to increase the financial resources of the regions considerably, being specially favorable in some of them, given its foregone evolution of its shared taxes, motivated by its high income levels. Anyway, it is foregone that the growth of health care financing for next years stays above the GDP, for what is necessary to stand out the gain in financial sufficiency of the new model.

Political and economic background

Health sector development during the period analyzed (1978-2004) has been affected by major organizational changes derived from a federalist model of Regional Health Services. This model has introduced new mechanisms that try to optimize the administration costs.

The Spanish Cohesion Act (2003) has configured the legal framework that must guarantee coordination and cooperation of different Regional Health Services, as instruments for the achievement of justness; quality and civic participation (see report n.1 on "Cohesion Act").

The system of financement of the regional health subsystems is one step farther on the decentralization process that has taken place in Spain since democracy started around the end of 1970s. The general system of financement consisted on transfers from the central government to the regional ones; regional governments also had some taxes, and lately also a tax-sharing system.

Only seven autonomous communities had powers on health services, and they were financed basically with a conditional transfer from the central government; the central government did have the competences for health provision and financing for the other 10 regions. In 2002, health services were transferred to the 10 regional governments, so that now all regions have health responsibilities; moreover, health is now financed as any other regional expenditure, out of the "general system of financement" (which includes among others, own taxes and taxes shared with the central government, as well as general transfers from the central government; specificities of the system are explained below).

Change based on an overall national health policy statement

Purpose and process analysis

Current Process Stages

	Idee	Pilotprojekt	Strategiepapier	Gesetzgebung	Umsetzung	Evaluation	Veränderung/Richtungswechsel
Implemented in this survey?

Origins of health policy idea

Health care decentralization in Spain has by now reached all autonomous communities, coinciding with the purpose of the previous models of general autonomous financing (1997-2001) and specific of the health care (1998-2001). Almost 25 years past the approval of the Spanish Constitution and 17 from the promulgation of Health Act, the process of health care decentralization is as good as closed (except for the cities of Ceuta and Melilla). However, there are doubts about the possible fragmentation of the national Health Service in Spain, accentuating the historical tendency to an unequal distribution of health care resources.

The mechanism of health care financing must contribute to the achievement of the constitutional command of right to protection of health (article 43) that demands that the health care resources are distributed in equality of conditions, independently of the region wehere you live (article 12 of Spanish Health Act).

In the evolution of the financing of the autonomous health care expenditure several periods can be distinguished:

The process of health care decentralization began with the approval of the Spanish Constitution in 1978 and with the transfer of health care management powers in Catalonia in 1981 and Andalusia in 1983. In this initial period, the assignment of resources was linked to the historical cost of health care services, although from 1984 an about ten year-old transitory period was profiled during which the percentages should adapt to protected population's approach.

In this stage, health transfers took place in Basque country and Community of Valencia (1987) and in Galicia and Navarra (1991). Fiscal and Financial Politics's Council, when approving the definitive method of general financing of the regions for the period 1987-1991, agreed to continue with the specific system of financing of the autonomous health care due to the special origin of the funds.

The basic mechanism of the general system consisted in that the budget of the National Health Institute (INSALUD) was removed in two big blocks: not transferred services (Direct Administration) and Transferred Administration that was distributed among the regions combining the approaches of effective cost of  transferred service and protected population.

The results were an inefficient administration of health care resources between regions and continuous treasury problems, demonstrated by the successive debts accumulated by the INSALUD.

Parallelly to this process, which began in 1989 and the signing of Toledo Agreement in 1995, in whose recommendation is contemplated that the health care should be financed in its entirety by general taxes, in 1999 the process of separation of financing sources of the system of Social Security culminates.

The previous problems motivated that another special Commission reached the Agreement of 1994, that was the first specific mechanism of health care financing settled down, effective for 1994-1997. This Agreement incorporated important issues such as the definition of protected population and fix the objective of the dynamic sufficiency and the financial stability. Also, in the first year of this period the health care transfer took place to Canarias (1994) and the budget of the SNS was linked, channeled through the INSALUD in each one of the years of the period, to the index of economic growth of the country (nominal GDP). In second place, bigger rigidity was introduced in the regional expense.

In summary, although this Agreement was able to solve some of the problems generated with health care powers it cannot be said that was established as a definitive and stable financing model.

In order to solve all the previous problems, the new model for the period 1998-2001 had the support of all the Spanish regions that had in that moment the administration of the health care.

This Agreement maintained the basic lines of the previous one as for its methodology (protected population upgraded for 1996 as allotment approach and an evolution scenario from the bound expense to the growth of the nominal GDP), although the changes were in fact in its articulation through different funds. By this way, the financing of the Transferred Administration was distributed through a General Fund dedicated to the covering of general assistance benefits and configured starting from the foreseen scenario for 1998 as extension of the previous model, being distributed all them in function of the protected population. Nevertheless, two novelties were introduced: the increase of the resources to distribute between regions and the creation of a Finalist Fund for specific attentions.  

In summary, the new effective system from 2002 and without date of expiration, breaks up with the previous model of conditioned financing of the health care, and finally integrates it in the general financing system of the regions. As starting point it takes the exercise of 1999, since this it was in fact the last one whose budget liquidations were available at the moment of the design of the pattern. The resources fixed initially for the financing of the health care services are distributed among regions on the basis of three variables: protected population (pondered with 75%),  population older than 65 years of age (24,5%) and insularity (0,5%). Also, a guarantee of minima is specified such that the Central Government guarantees that regions have not less resources than those which result when applying the previous model. Also, the new model reinforces health care financing through the "Program of Saving in Labour Temporal Inability" and a new Fund called "Cohesion Fund" (regulated by the RD 1247/2002, specifying that has it should be dedicated to cover the costs of programmed hospital attendance to displaced patients coming from other regions).

Health care financing is covered by regions basically through three types of resources, as any other service offered by regional governments: own taxes, shared (totally or partially) taxes and transfers coming from the central government. There is also another type of resource, the "Assignments of Levelling" which is conditioned, and has the objective to cover extraordinary situations of regional inequality in essential public services -as health and education-, caused by deviations in population's percentages which are initially taken into account for the "general system of regional financing".

The new model also establishes certain evolution rules and financial guarantees that try to secure the dynamic sufficiency of the system. By this way, it is imposed to the regions the obligation to dedicate a minimum quantity of resources to the administration of the social services included in the Social Security System (Health Care and social services), and it has to grow annually at the same rate as do the Fiscal Revenues of the Central Government (ITE). Besides, the model created a transitory mechanism of guarantee of financial dynamics, in which during the first three years of the new system (2002-2004) the Central Government guarantees to the regions that the index of evolution of the resources assigned to health care is the nominal GDP, in a similar way to that settled down in the two previous agreements of health care financing.

Once explained the basic aspects of the current system of health care financing, we will try to evaluate the economic effects that have been derived of the new model. The evolution of the financing system starting from the current moment is subjected to a high degree of uncertainty and it will depend on a combination of factors difficult to predict. Among them, we highlight the coordination degree and cooperation that it is achieved among all the Regional Health Services.

The setting of the new system of health care financing seems to have untied by this way the euphoria among the regional governments that, with the responsibility about the capacity to generate great part of its own revenues, have decided to bet for a strong increment of the funds dedicated to health care in 2002 and in 2003. For example, Catalonia announced for 2002 an increase of resources of 8%, Andalusia and the Community of Valencia registered ascents around 10%, leaving previous forecasts behind.
In 2003, Canarias increased its budget in 7,1%, after approving an extraordinary credit in 2002 as a consequence of the deficit originated by its high invoice of pharmacist expenditure. On the other hand, regions like Murcia will increase their health care budget (11,6%), Cantabria (11,11%), Catalonia (7,88%), Andalusia and Asturias (7,5%) and Basque country (6,2%). So that the fiscal accountability that entered the system in 2002 and 2003 in health care, seems to has made for an increase of the autonomous health care expenditure substantially above the increase of GDP; but many of those regions have not incorporated new health care benefits in turn. 


Finally, it is worth pointing out that recently some disagreements have taken place among some regional governments and the central government concerning the financing of health expenditures (benefits).

Stakeholder positions

Regional governments did not disagree with the new financing system implemented in 2002, even though there were some expression of discontent related to the allocated resources and their distribution among regions. For the Cohesion Act, see report n.1 "Cohesion Act", year 2003.

Although we could think that the regions when assuming bigger fiscal co-accountability with the health transfers in 2002 would be wiser with their financial forecasts, the reality shows us the opposite - although some precautions have to be taken into account concerning budget forecasts or budget real execution figures. For example, in 2002 budgetary forecasts of the health expenditures of some regional governments grew above GDP growth. In 2003 the tendency of the previous year was again the same, although growth was lower. In 2004 nearly almost regional health authorities increase also their budget by more than GDP growth, even though caution seems to have entered their budgets (Madrid and Catalonia are special cases because of elections in both regions).

2002-2004: Health expenditures growth higher than GDP

In synthesis, the fiscal co-accountability introduced by the system in 2002, seems to have made for relevant increases in the regional budgets for health services; in 2002, 2003 and 2004 health expenditures have increased faster than GDP. Many regions have not incorporated new health care benefits; but other relevant factors are also playing their role, e.g. aging.

Nevertheless, health care decentralization in 2003 and 2004 has driven to a somehow more stringent budgets, a bit less euphoric than in the previous exercise (2002); this is due to the fact that many regions have begun to experience their first financial difficulties, mainly due to the increase of the pharmaceutical invoice that is still at high levels in spite of the recent ministerial order that fixes reference prices.

Another element to notice is the increase in personnel's expenditures in almost all regions, being a consequence of labour-unions' pressures to obtain better labour conditions (e.g. to become "statutory" professionals, which is something like civil servants; see report on "New legislation of health professional careers, training and working conditions", 2004), agreed upon by taking advantage of the decentralization process and the political component of demonstration of its autonomy in health care administration.  Actually, real possibility of juridical-labor fragmentation of the Spanish National Health Service exists. The described situation becomes worse since, in parallel to the transfer of health services that it has only affected some regions, in all of them is culminating in these moments the consolidation process and the changes in professionals careers and labour conditions, which generates many important direct and indirect costs.

Influences in policy making and legislation

Legislative approval has been given for an undefined period.

Legislative outcome

success

Adoption and implementation

The change in the system implemented in 2002 an the Cohesion Act did not foresee any mechanism of revision, except for what has already been said. In fact, the new financing system was considered by the central government to be "non-revisable", while the previous systems were revised every five years. This "non-revision" of the system was applicable to the whole system of regional financing; and health care was included in it. 

Concerning the evaluation we can do, as for the protected population's evolution and their relationship with the expenditure, per capita budget has grown from 2003 to 2004, from 923 to 955 Euros. Also, it is interesting to point out the strong divergences between regions when we analyze data about variations of up to 441 Euros in per capita expense in 2004 in connection with the amplification of the interregional differences in last years (La Rioja with 1227 Euros and Baleares with 787 Euros). This financial variation is not parallel with the evolution of protected population.  Nevertheless, Spain is not a country with wide inequalities in per capita health care expenditures in spite of its current large dispersion between regions.

Expected outcome

The current pattern of health care financing outlines diverse queries and risks that it is meetly to revise: 

The first one has to do with the Financial Sufficiency (Static and Dynamics) of the  model, because of the widespread growth of health care expenditure (in all OECD countries) more than proportionally to income growth and because the decentralization can affect the financial sufficiency in a negative way as a  consequence of the loss of scale economies.

In second place, there is an aspect very valued by the citizens and it´s justness (guarantee of the access equality to health benefits in whole national territory). In this sense, the dynamics of the pattern of general financing with "fiscal room" will be increased differences in per capita regional health care expenditures. Differences from 2002 in health care expenditure can come now from differences in financing for higher regional fiscal effort, higher prioritzacions of this type of expenditures (health) in regions or larger margin for a better efficiency in health care expenditure. In this last case, appropriate focus continues to be that the real causes of personal differences in health are not properly tackled.

A third discussion element refers to efficiency. From this point of view, difficulties exist to have a remarkable system of information, absence of effective and efficient control mechanisms, inefficient duplication of services when not taking advantage the scale economies because lack of cooperation agreements among regions, coordination problems and difficulties related with setting in practice an institutional loyalty principle.

In conclusion, the question is if this model of autonomous financing will fulfill its initial objectives: to be stable and definitive. Especially in the case of health care, it doesn't seem to be enough with designing a new system of allotment of the resources to regions, to think that the process of health decentralization is closed. The compared experience shows us as that the financing models are not eternal neither definitive; that is logically also applicable to the Spanish case.

Impact of this policy

Qualität	kaum Einfluss		starker Einfluss
Gerechtigkeit	System weniger gerecht		System gerechter
Kosteneffizienz	sehr gering		sehr hoch

Until the moment, most of the developed countries have opted to maintain a balance among autonomy and regional responsibility and supervision and central control. Nevertheless, deviations at the regional scale are more marked when in health care financing the fiscal capacity acts and not, like it has been happening in Spain, with a system basically based on population and without fiscal responsibility.

By this way, equality in regional per capita health care expenditure is not a valid approach of justness in health care systems with different types of decentralization, since the opposite would be considered either expressive of the relationship among health care expenditure and its products, or it would reflect the need of different levels of regional expenditure to reach certain general conditions of health justness (related with access to services) established in a specific way. Therefore, examples like United States that dedicates more resources to health care than Spain but without getting similar health indicators, should make us think about health care expense' effectiveness.

As a synthesis of this report, historical evidence of the process of health decentralization has consolidated our National Health System, especially in the case of the regional administration.

References

Sources of Information

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Author/s and/or contributors to this survey

David Cantarero Prieto

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David Cantarero Prieto. "Evaluating regional health care financing". Health Policy Monitor, 04/04. Available at http://www.hpm.org/survey/es/b3/1