US embassy cable - 05PRAGUE1176

UNCLAS SECTION 01 OF 04 PRAGUE 001176 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, ELAB, ETRD, EZ 
SUBJECT: GOCR HEALTH CARE REFORM 
 
 
 1.  (U) Summary.  On July 7, following up on several health 
care reform 
proposals by Health Minister Milada Emmerova, the GOCR 
officially approved 
specific steps and deadlines for reform implementation.  As 
part of these 
health care reforms, the government-run health insurance 
company, VZP (the 
General Health Insurance Company, will receive CZK 3 billion 
(Approximately 126 
million USD), while the other 8 semi-privately-run health 
insurance companies 
would receive CZK 800 million (Approximately 33.7 million 
USD).  In addition, 
the reform package will increase government payments to 
health insurance 
companies for the health care of several population groups, 
including that of 
pensioners.   VZP has a disproportionately large number of 
pensioners in 
comparison with that of the other health insurance companies. 
 The assumption 
is that the health care system will benefit by CZK 2.3 
billion (Approximately 
96.78 million USD) as a result.  Emmerova also intends to 
provide health care 
cost savings through lowering the cost of medicine five to 
six percent by 
decreasing the margin of profit that drug companies make with 
their mark-up on 
drugs. The proposed reforms do not include patient 
co-payments, and do not sufficiently 
address the long term financial consequences of an aging 
populatation receiving 
free health care.  End summary. 
 
 
Czech Health and Health Care: 
------------------------------------ 
 
2.  (U) Public health expenditures in the CR are among the 
highest in the 
region.  Currently, they make up 91.4% of total health 
expenditures, while in 
Hungary and Poland they make up 70.2% and 72.4%, 
respectively.  These figures 
are also well above the World Bank,s group average of Europe 
and Central Asia 
which are $151.8 and 65.6%, and the average of 
upper-middle-income countries at 
$309.8 and 57.6%.  (Note: According to the World Bank,s 
current classification 
system, the CR is an upper-middle-income country, as are 
Poland and Hungary). 
 
 
3.  (U) The Czech health care system operates with nine 
insurance companies, 
one of which, VZP, is government-owned, while the rest are 
semi-private. 
Employees and employers both contribute to health insurance 
through payroll 
taxes, which at 13.5% (in comparison to Poland,s 7.75%) were 
already considered 
to be relatively high even prior to reform.  The increased 
coverage by the 
government of the several population groups will also mean 
that, according to 
the Czech labor code, private businesses will also be forced 
to increase their 
contributions toward their employees, health care insurance. 
 
 
4.  (U) Despite this relatively high tax rate, and the fact 
that VZP received 
the largest portion of a common pool of money contributed by 
all insurers for 
their populations over 60, the VZP has a current debt of CZK 
10 billion 
(Approximately 420.9 million USD).  (Note: Each insurer was 
contributing 
approximately 60% of its income. This money was allocated 
according to the 
percentage of each insurance company,s population over 60. 
This allocation 
increased by 15% in 2005.  It is supposed to increase by 100% 
by 2006.) As 
previously stated, with the reform VZP will receive CZK 3 
billion 
(Approximately 126 million USD), through the GOCR buying its 
receivables. 
Obviously, this will only alleviate less than one-third of 
the VZP,s debt; 
however, the GOCR plans to make this a long-term process. 
The question then 
becomes whether these reforms are sufficient to reform Czech 
health care. 
 
Political Background: 
--------------------------- 
 
 
5.  (U) The CR has been attempting to reform its health care 
system since 1989; 
in the past 15 years, there have been 11 health ministers 
including Emmerova, 
who was appointed in August 2004.  Health care is an 
extremely sensitive 
political issue in the CR, particularly in light of the 
upcoming June 2006 
parliamentary elections.   As such, the government reforms 
avoid such unpopular 
measures as increases in patient co-payments.  (Note: Czech 
Deputy Prime 
Minister Jahn,s strategy for economic growth supported 
co-payments to doctors, 
but this, along with other provisions of the strategy, was 
rejected by the 
labor unions and removed.) As Petr Slama, Deputy Minister of 
Health, stated 
recently in an interview &co-payments are not on the agenda 
now(what we plan to 
do is to push the prices of drugs down.8 Besides these cost 
issues, the CR also 
faces a number of quality concerns, many of which stem from 
financial 
problems.  Among them are a brain drain of doctors and 
dentists to wealthier 
countries and the inability of hospitals to meet their 
patients, medical needs 
because insurance companies are behind in their payments, 
resulting in 
suspension of drug sales to the hospitals.  At the end of 
July, a dispute arose 
between the insurance companies and hospitals, as to whether 
the insurance 
companies owed hospitals more than they had paid them for a 
specific type of 
care; the government has announced that the issue will be 
resolved after its 
holiday, but the hospitals have stated that without payment, 
they will have to 
make cuts that will affect patients, quality of care. 
 
 
Management Reform: 
--------------------------- 
 
6.  (U) Reforms in management, particularly at VZP, continue 
to be a major 
concern for critics of the health-care system and Emmerova,s 
health care 
proposal.  One of the arguments made is that, with the 
reallocation of monies 
away from other health insurance companies to VZP, VZP has an 
unfair 
advantage.  Nor do critics think such redistribution will be 
sufficient to 
reform VZP.   Jaromir Gajdacek, who heads the Association of 
Health Insurance 
Companies CR (SZP CR) recently stated that in order to begin 
to solve VZP,s 
debt problems, the state,s indexation would have to increase 
significantly from 
2.3 billion (Approximately 96.78 million USD) or 12 crowns 
(Approximately 50 
cents) per person to 144 crowns (Approximately 6 dollars) per 
person.  VZP is 
currently undergoing an audit; the ministries that are 
involved with the audit 
are not in agreement as to when this audit will be finished. 
In addition, 
charges of a conflict of interest have been leveled here: a 
former member of 
VZP,s board of directors is involved in the audit.  In 
addition to this, there 
have been charges of corruption leveled against the head of 
VZP. 
 
7.  (U) According to press reports, the Czech Chamber of 
Doctors (CLK) is one 
of the sharpest critics of VZP and its management.  The 
government is examining 
making changes to the management of all insurance companies, 
(in terms of 
appointment and tenure), in addition to expecting insurance 
companies to cut 
their operational costs by 2.5%.  Gajdacek does not appear to 
support reforming 
how insurance companies are managed in general, even though 
SZP CR is critical 
of VZP; rather, he, along, with the CLK, are both strongly in 
favor of 
increasing patient co-payments.  The main opposition party, 
the ODS also 
supports this increase, as do pharmaceuticals.  But increased 
co-payments have 
already been ruled out by the government. 
 
8 .  (U) In 2004, the Financial Times reported that, 
according to Standard & 
Poor,s, the CR, along with several other countries (Japan, 
Germany, France, and 
Poland) may face credit rating difficulties by the 2030s, as 
their debt grows 
enormously over the next 45 years (until 2050) without 
&decisive measures to 
cut state provision for old age.8  The report by Standard & 
Poor,s gives 
several possible reasons for such difficulties: enormous 
growth in life 
expectancy, a low birth rate, and large amounts of debt.  The 
CR faces all of 
the above 3 difficulties; the 2004 CR Statistical Office 
recently reported that 
men,s life expectancy has increased to 72.5 (from 69 in 
2003) and women,s has 
increased to 79 years (from 77 in 2003).  The CR has, at 
least until recently, 
also faced low population growth.  In 2002, the CR,s total 
fertility rate was 
1.2 children per woman of child-bearing age. 
 
10.  (U) Debt is also a relatively new experience for the CR, 
but is certainly 
present in the current health care system.  Standard & 
Poor,s conclusions are & 
based on a model assuming that governments will not adjust 
their fiscal 
policies to allow for an increase in the proportion of 
pension-age population 
and a concomitant fall in the share of workers(Age-related 
expenditure is 
expected to start rising in the mid-2010s and peak in the 
2020s.8  Indeed, they 
anticipate that, after Japan, with current spending 
continuing as it is, the CR 
would have the most debt of the above-listed countries to 
deal with. 
 
11.  (U) The GOCR has approved several health-care reforms 
that may be positive 
in nature, including increasing compensation for health 
professionals (a move 
that CLK supports) in a system where, according to press 
reports, &hundreds of 
Czech doctors go abroad every month,8 even if only 
temporarily, to earn extra 
income.  (Note: This proposal was not discussed with the 
union of health care 
workers; in an interview with POLOFF, the head of the union 
indicated that they 
were not supportive of this proposal, as they believed it is 
not affordable. 
This seems to be verified by Paroubek,s failing so far to 
provide the monies to 
raise wages, though he has under his promise, until September 
to do so.  Some 
believe this may actually contribute to the problem as well, 
as hospitals and 
health insurance companies run up their debts and continue to 
postpone payments 
to pay the union,s workers, eventually leaving the state to 
bail them 
out-again.) Other proposals under consideration include 
management reform and 
cost-cutting by a variety of measures (including by joint 
purchases of 
medicines for hospitals; CZK 6 billion in savings 
(Approximately 252.5 million 
USD) are estimated, or even merging all of the insurance 
companies into one, as 
an attempt to solve the debt and demographic problems of VZP. 
 The government 
has not approved this measure yet, though PM Paroubek 
supports it, as does 
KDU-CSL (the Christian Democrats) and the KSCM (the Communist 
Party).  The 
major &reforms8 that have already been approved, however, 
are unlikely to 
change much in the Czech health-care system, at least on a 
permanent basis. 
Although health insurers support many of the reform measures 
taken (that is, 
the government buying their debt, indexation of government 
payments, the 
government paying for a portion of certain hospital beds, as 
well as lowering 
the medicine margin), the political reasons resulting in the 
unwillingness to 
increase the patient co-pay will likely make this reform only 
a stop-gap 
measure in the Czech health-care system, even assuming that 
it passes 
Parliament.  The GOCR does consider these short-term 
measures, but as it 
acknowledges in its original healthcare proposal, VZP has had 
prior financial 
support from the state.  VZP,s health is of critical 
importance to the Czech 
health care system because it is the insurance company for 
over half of the 
Czech population; it was the initial insurance company 
established after 
Communism, and much of the population remains with it. 
Though drug costs are a 
legitimate concern with an older population, lowering the 
medicine margin and 
the reimbursement rates are unlikely to ultimately solve 
VZP,s problems. 
 
15.  (U) Comment: The International Association of 
Pharmaceutical Companies 
(MAFS), which includes American pharmaceutical companies, is 
unlikely to be 
pleased with this reform.  While the American Chamber of 
Commerce believes the 
Czech health care system needs reform to stabilize its 
finances, the MAFS, 
including American pharmaceutical companies, believes that 
the Czech 
reimbursement system is already discriminatory in nature, 
favoring the local 
generic drug producer, Zentiva.  Under the Czech 
reimbursement system, the 
Ministry of Finance determines the maximum price of drugs, 
while the Ministry 
of Health determines the maximum amount of the drug price 
that can be 
reimbursed.  Reimbursement levels are usually set by the 
price of the 
lowest-priced (typically generic) drug, though other drugs 
may be partly 
reimbursed.  Patients make up the difference between the 
reimbursement level 
and the cost of the drug.  While maximum price setting is 
important, 
reimbursement levels are what have increasingly drawn the 
pharmaceutical 
industry,s anger; lower reimbursement rates naturally favor 
lower-cost, 
typically generic, drugs, hurting American drug companies, 
profits, as will the 
new decrease in the medicine margin.  There is no indication 
that the reform 
proposal will alleviate the concerns of the pharmaceutical 
companies, and, in 
fact, may have the potential to worsen their situation.  End 
comment. 
CABANISS