The Dying Breed: Healthcare in Eastern Europe

By: Sam Vaknin, Ph.D.

Also published by United Press International (UPI)

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Transition has trimmed Russian life expectancy by well over a decade. People lead brutish and nasty lives only to expire in their prime, often inebriated. In the republics of former Yugoslavia, respiratory and digestive tract diseases run amok. Stress and pollution conspire to reap a grim harvest throughout the wastelands of eastern Europe. The rate of Tuberculosis in Romania exceeds that of sub-Saharan Africa.

As income deteriorated, plunging people into abject poverty, they found it increasingly difficult to maintain a healthy lifestyle. Crumbling healthcare systems, ridden by corruption and cronyism, ceased to provide even the appearance of rudimentary health services. The number of women who die at - ever rarer - childbirth skyrocketed.

Healthcare under communism was a public good, equitably provided by benevolent governments. At least in theory. Reality was drearier and drabber. Doctors often extorted bribes from hapless patients in return for accelerated or better medical treatment.

Country folk were forced to travel hundreds of miles to the nearest city to receive the most basic care. Medical degrees were - and still are - up for sale to the highest, or most well-connected, bidder. Management was venal and amateurish, as it has remained to this very day.

Hospital beds were abundant - not so preventive medicine and ambulatory care. One notable exception is Estonia where the law requires scheduled prophylactic exams and environmental assessment of health measures in the workplace.

Even before the demise of central healthcare provision, some countries in east Europe experimented with medical insurance schemes, or with universal healthcare insurance. Others provided healthcare only through and at the workplace. But as national output and government budgets imploded, even this ceased abruptly.

Hospitals and other facilities are left to rot for lack of maintenance or shut down altogether. The much slashed government paid remuneration of over-worked medical staff was devoured by hyperinflation and stagnated ever since. Equipment falls into disrepair. Libraries stock on tattered archaic tomes.

Medicines and other substances - from cultures to vaccines to immunological markers - are no longer affordable and thus permanently in short supply. The rich monopolize the little that is left, or travel abroad in search of cure. The poor languish and die.

Healthcare provision in east Europe is irrational. In the healthcare chapter of a report prepared by IRIS Center in the University of Maryland for USAID, it says:

"In view of the fall in income and government revenue, there is a need for more accurate targeting of health care (for instance, more emphasis on preventive and primary care, rather than tertiary care), and generally more efficient use of benefits (e.g., financing spa attendance by Russian workers can be cut in favor of more widespread vaccination and public education). As the formal privatization (much is already informally privatized) of health care proceeds, and health insurance systems are developed, health care access for poverty-stricken groups and individuals needs to be provided in a more reliable and systematic way."

But this is hard to achieve when even the token salaries of healthcare workers go unpaid for months. Interfax reported on March 9 that 41 of Russia's 89 regions owe their healthcare force back wages. Unions are bereft of resources and singularly inefficacious.

The outcomes of a mere 6 percent of national level consultations in Lithuania were influenced by the health unions. Their membership fell to 20 percent of eligible workers, the same as in Poland and only a shade less than the Czech Republic (with 32 percent).

No wonder that "under the table" "facilitation fees" are common and constitute between 40 and 50 percent of the total income of medical professionals. In countries like the Czech Republic, Croatia, and chaotic Belarus, the income of doctors has diverged upwards compared to other curative vocations. It is not possible to obtain any kind of free medical care in the central Asian republics.

This officially tolerated mixture of quasi-free services and for-pay care is labeled "state-regulated corruption" by Maxim Rybakov from Central European University in his article "Shadow Cost-sharing in Russian Healthcare".

As though to defy this label, the Russian Ministry of Health is conducting - together with the Audit Chamber and the Ministry of the Interior - a criminal investigation against healthcare professionals. The Russian "Rossiiskaya Gazeta" quoted in Radio Liberty/Radio Free Europe:

"According to Shevchenko (the Russian minister of health), there are some 600,000 doctors and 3 million nurses working in Russia today; of this total around 500 medical workers are currently being investigated on suspicion of a variety of offenses such as taking bribes, using fake medical certificates, and reselling medicine at a profit. Shevchenko also stated that the State Duma will soon adopt a law on state regulation of private medical activities, which he said will put the process of commercializing medical establishments on a more legal footing."

The UN's ILO (International Labour Organization) warned, in a December 2001 press release, of a "crisis in care". According to a new survey by the ILO and Public Services International (PSI):

"The economic and social situation in several East European countries has resulted in the near collapse of some health care systems and afflicted health sector workers with high stress, poor working conditions and salaries at or below minimum wage - if and when they are paid."

Guy Standing, the ILO Director of the Socio-Economic Security Program and coordinator of the studies added:

"Rapidly increasing rates of sexually-transmitted diseases, HIV/AIDS, tuberculosis and numerous chronic diseases have created a crisis of care made all the more dramatic by diminishing public health structures, lack of training of health care professionals and general de-skilling of the workforce. All of this has surely contributed to the catastrophic fall in life expectancy rates in Russia, Ukraine and some other countries in the region."

The situation is dismal even in the more prosperous and peaceful countries of central Europe. In another survey, also conducted by the ILO ("People's Security Survey"), 82 percent of families in Hungary claimed to be unable to afford even basic care.

This is not much better than Ukraine where 88 percent of all families share this predicament. Agreements signed in the last two years between Hungarian hospitals and cash-plan insurers further removed health care from the financial reach of most Hungarians.

Healthcare workers in all surveyed countries - from the Czech Republic to Moldova - complained of earning less than the national average and of crippling wage arrears. In some countries - Armenia, Moldova, Kyrgyzstan - few bother to clock in anymore. In others - Poland and Latvia, for instance - a much abbreviated working week and temporary labor contracts are imposed on the reluctant and restive healthcare workers.

One in twenty hospitals in Poland had to close between 1998-2001. In an impolitic spat of fiscal devolution, ill-prepared local authorities throughout the region were left to administer and finance the shambolic health services within their jurisdictions.

The governments of east Europe tried to cope with this unfolding calamity in a variety of ways.

Consider Romania. Half the population claim to be "very satisfied" with its health services.

In Romania, the 1997 Health Insurance Law shifted revenue collection and provider payments to a maze-like coalition of 41 district health insurance houses (HIH) headed by a National Health Insurance House. Romanian citizens are forced to foot one third of their health bills in a country which spends a mere 3 percent of GDP on the salubrity of its citizens - the equivalent of $100 per year per capita. Only a small part of this coerced co-financing is formal and legal.

About 70 percent of the meager state budget is derived from erratic payroll health insurance fund contributions, now set at 14 percent of wages. The national budget supplements the rest. Some of the contributions are distributed among the poorest regions to narrow the inequality between urban and rural areas.

The HIH's pay health care providers, such as hospitals based on capitation, or a projected global budget. They are experimenting now with fee-for-service reimbursement methods. All these payment systems, inevitably, are open to abuse. Monitoring and auditing are poor and relations are incestuous.

The Ministry of Health still makes all major procurement decisions. Many government organs - the Ministry of the Interior, the transport system, the Army - all maintain their wastefully parallel care provision networks. Donor funds, multilateral financing, and government money have all vanished into this insatiable sink of venality.

The only rays of light are private dental and medical clinics, laboratories, and polyclinics working side by side with private pharmacies and apothecaries. These cater to the well-to-do. But the government emulated them and "privatized" the institution of the family physician (general practitioner).

GP's now receive, on a contractual basis, payment per socially-insured patient treated. They make rent-free use of clinics and equipment in their workplace. Many of these doctors now borrow small amounts from willing banks - a scarcity in Romania - to open their own practice.

In an article published on March 2000 in "Central Europe Review" and titled "Trying our Patients", Professor Pavel Pafko, Head of the Third Surgery Department, Charles University Faculty Hospital, Prague, lamented the state of Czech medicine:

"After the 1989 Velvet Revolution, there were fundamental changes in the health service: the market was opened to manufacturers of medical equipment, aids and medicines, and Parliament announced the right for everyone to choose their own doctor. In my opinion, the health service was not sufficiently prepared for these fundamental changes.

In the public's mind the idea of 'free health care' survived and continues to survive from the Communist period, as does the idea that all of us are equal as long as we are healthy. The sick man in many cases loses this equality and cannot himself pay by legal means for what the state, or rather the insurance companies, have no resources to provide."

Expenditure on health amounted in the 1990's to c. 7 percent of GDP per year (compared to 14 percent of a much larger GDP in OECD countries). But medical insurance firms cannot cope with vertiginous prices of imported medicines. Hospitals now receive insufficient lump-sum payments rather than getting reimbursed for procedures and treatments carried out. Naturally, most of these go towards staff wages. Little is left for medical care.

Poland is in no better shape. Its embattled minister of health, Mariusz Lapinski, stumbles from crisis to criticism in his doomed effort to reform a ramshackle system. The two current scandals involve heavily and unsustainably subsidized drugs and a new health bill, fiercely opposed by progressive interests, such as medical doctors and nurses. The Polish weekly, Wprost, went as far as comparing Poland's healthcare to Egypt's, Turkey's, and Mexico's.

The World Bank discovered in 1998 that 78 percent of Poles had to pay illicitly to obtain basic care. Lapinski intends to dissolve the regional state health funds and resurrect them in the form of a national edition. But state-run hospitals in Poland are insolvent. Naturally, healthcare workers have little faith in the management skills of the state.

They are calling for open competition among teams of commercial health insurance funds and health care providers. They would also like to increase health insurance contributions to allow Poland to spend on health more than the current 5.5 percent of GDP.

UPI reported recently ("Shock Therapy in Macedonian Healthcare") about a strike of medics in Macedonia as typical of the problems facing the healthcare systems of all countries in transition: privatization, the involvement of the state, and Western influence of the reform process. The transition to the western General Practitioner (GP) model is hotly debated. As far as doctors are concerned, it is a lucrative proposition. But it could exclude poorer patients from medical care altogether.

Still, the main problem is the gap between grandiose expectations and self-image - and shabby reality. East European medicine harbors fantastic pretensions to west European standards of quality and service. But it is encumbered with African financing and Vietnamese infrastructure. Someone must bridge this abyss with loads of cash. Either the government, or the consumer must cough up the funds. The sooner everyone come to terms with this stressful truth - the healthier.

Appendix: Healthcare Legislation


Presented to the Plenum of the Committee on June 15, 2009

By: Sam Vaknin, Ph.D., economist 

GENERAL (Also see "Social Values and the Health System")

Healthcare legislation in countries in transition, emerging economic, and developing countries should permit - and use economic incentives to encourage - a structural reform of the sector, including its partial privatization.


·        Universal healthcare vs. selective provision, coverage, and delivery (for instance, means-tested, or demographically-adjusted)

·        Health Insurance Fund: Internal, streamlined market vs. external market competition

·        Centralized system – or devolved? The role of local government in healthcare.

·        Ministry of Health: Stewardship or Micromanagement?

·        Customer (Patient) as Stakeholder

·        Imbalances: overstaffing (MDs), understaffing (nurses), geographical distribution (rural vs. urban), service type (overuse of secondary and tertiary healthcare vs. primary healthcare)


·        To amend existing laws and introduce new legislation to allow for changes to take place.

·        To effect a transition from individualized medicine to population medicine, with an emphasis on the overall welfare and needs of the community

Hopefully, the new legal environment will:

·        Foster entrepreneurship;

·        Alter patterns of purchasing, provision, and contracting;

·        Introduce constructive competition into the marketplace;

·        Prevent market failures;

·        Transform healthcare from an under-financed and under-invested public good into a thriving sector with (more) satisfied customers and (more) profitable providers.

·        Transition to Patient-centred care: respect for patients’ values, preferences, and expressed needs in regard to coordination and integration of care, information, communication and education, physical comfort, emotional support and alleviation of fear and anxiety, involvement of family and friends, transition and continuity.

The Law and regulatory framework should explicitly allow for the following:


(I1) Private health insurance plans (Germany, Czech Republic, Netherlands), including franchises of overseas insurance plans, subject to rigorous procedures of inspection and to satisfying financial and governance requirements. Insured/beneficiaries will have the right to apply contributions to chosen purchaser and to switch insurers annually.

Private healthcare plans can be established by large firms; guilds (chambers of commerce and other professional or sectoral associations); and regions (see the subchapter on devolution under VI. Stewardship).

Private insurers: must provide universal coverage; offer similar care packages; apply the same rate of premium, unrelated to the risk of the subscriber; cannot turn applicants down; must adhere to national-level rules about packages and co-payments; compete on equality and efficiency standards.

(I11) Breakup of statutory Health Insurance Fund to 2-3 competing insurance plans (possibly on a regional basis, as is the case in France) on equal footing with private entrants.

Regional funds will be responsible for purchasing health services (including from hospitals) and making payments to providers. They will be not-for-profit organizations with their own boards and managerial autonomy.

(I12) Board of directors and supervisory boards of health insurance funds to include:

-         Two non-executive, lay (not from the medical professions and not politicians) members of the public. These will represent the patients and will be elected by a Council of the Insured, (as is the practice in the Netherlands)

-         Municipal representatives;

-         Representatives of stakeholders (doctors, nurses, employees of the funds, etc.).

(I13) The funds will be granted autonomy regarding matters of human resources (personnel hiring and firing); budgeting; financial incentives (bonuses and penalties); and contracting.

The funds will be bound by rules of public disclosure about what services were purchased from which providers and at what cost.

Citizen juries and citizen panels will be used to assist with rationing and priority-setting decisions (United Kingdom).

(I2) Procurement of medicines to be done by an autonomous central purchasing agency, supervised by a public committee (drug regulatory authority) aided by outside auditors.

All procurement of drugs and medications will be done via international tenders.

The agency will submit its reimbursement rates for drugs on the PLD to external audit in order to accurately reflect pharmacists’ overhead costs. At the same time, the profit margins on all drugs, whether on the PLD or not, will be regulated.

This agency should be separate from the Health Insurance Fund and the Ministry of Health. This agency will also maintain national drug registries. It will secure volume discounts for bulk purchasing and transparent, arm’s-length pricing.

(I21) Use of reference prices for medicines. If the actual price exceeds the reference price, the price difference has to be met by the patient.

(I3) The Approved (Positive) List of Medicines will be recomposed to include generic drugs whenever possible and to exclude expensive brands where generics exist. This should be a requirement in the law. Separately, an Essential Drug List will be drawn up.

(I31) Encourage rational drug prescribing by instituting a mixture of GP and PHC incentives and penalties, or a fundholding system: budgets will be allocated to each GP for the purchase of drugs and medications. If the GP exceeds his/her budget, s/he is penalized. The GP gets to keep a percentage of budget savings. Prescription decisions will be medically reviewed to avoid under-provision.

(I4) Payments and Contracting

Payment to providers should combine, in a mixed formula:


Capitation - A fixed fee for a list of services to be provided to a single patient in a given period, payable even if the services were not consumed, adjusted for the patients' demographic data and reimbursement for fee-for-service items.

Inflation-adjusted Global budgeting (hospitals) and block (lump sum) grants (municipalities)


Provide incentives and reward marketing efforts which result in an increase in
demand/referral beyond the limit set in a block contract.


Apply Diagnosis Related Group (DRG)/ Resource-based Relative Value (RBRV) / Patient Management Categories (PMCs) / Disease Staging/Clinical Pathways

Levels of reimbursement, case-mix adjusted to be decided by external auditors.

Contracts with providers should include:

·        Waiting Times Guarantee

·        Single Contact Person (“Case Officer”) for the duration of a stay at the hospital

·        Hospital benchmarking (individual-level data on costs, diagnoses, and procedures during entire case episodes: inpatient admissions and outpatient visits; cost-effectiveness of services.

·        Performance targets in performance agreements with all healthcare facilities, both public and private.

·        All payments - wages included - will be tied to these targets and their attainment as well as to healthcare quality as determined by objective measures (internal, external, and functional benchmarking), clinical audits (sampling), as well as customer satisfaction surveys and interviews and discussions with patients.

·        Provider and Staff Bonuses and penalties tied to exceeding/under-performing targets and contract variance

·        Patients’ rights, including their rights to litigate

Selective contracting will be allowed on all levels (including specialist ambulatory care and hospitals), although all providers, private and public, will be permitted to apply for contracts with health funds and insurers. The funds will choose from among private providers either following a process of deliberation, or via an auction, or public tender (United Kingdom).

(I5) Commissioning preference will be given to the purchase of Primary Healthcare over secondary, or tertiary Healthcare.


The Law and regulatory framework should explicitly allow for the following:

 (II1) Hospital Management

(See separate document)

The law should allow:

I. Co-location of a private wing within or beside a public hospital

II. Outsourcing of non-clinical support services

III. Outsourcing of clinical support services

IV. Outsourcing of specialized clinical services

V. Private management of public hospitals

VI. Private financing, construction, and leaseback of new public hospitals

VII. Private financing, construction, and operation of new public hospitals

VIII. Sale of public hospitals as going concerns

IX. Sale of public hospitals for alternative use

X. Consolidation of redundant public healthcare facilities by merging them or closing down some of them

XI. Privatization of Primary Healthcare (PHC) clinics within medical centers

XII. Healthcare institutions will be granted autonomy regarding matters of human resources (personnel hiring and firing); administering financial incentives or penalties, budgeting; and contracting.

XIII. Privatization pharmacies inside medical centers and hospitals.

(II2) Primary, Ambulatory, and Secondary Care and General Practitioners (GP)

(II21) Limit the number of patients per GP

(II22) Stimulate and financially incentivize the following activities, which should be declared national priorities within a National Needs Assessment:

·        Group practices and networks (for continued, around-the-clock services)

·        Day and minimally invasive surgery

·        Dispensaries

·        Home and day care services

·        Long-term care (nursing homes, visiting nurses, home I.V. and other services provided to chronically ill or disabled persons)

·        Patient hotels

·        Rehabilitation facilities and programs

·        Provision of merit goods (also through mass campaigns)

·        Conversion of hospital units to outpatient services, and day-care centers

Example of such financial incentives:

·        Physicians will be entitled to see patients who receive services free-of-cost
in the public sector in the morning, and private patients who pay the full
cost of the medical consultation in the afternoon.

·        Allow private beds in public hospitals and private financing of hospital stays (NHS, UK)

·        Subsidize or fully cover transaction costs (legal fees of contracting, compliance, accounting, etc.)

(II23) Allow hospitals to administer packages of outpatient services and be reimbursed by the Health Insurance Fund (or funds).

(II24) Impose an admission quota on medical schools; reduce the obligatory number of doctors per 1000 population; and make GP a medical specialty.

(II25) Strengthen the gatekeeper function of GPs and healthcare provision in outpatient settings.

Encourage gatekeeping  by instituting a mixture of GP and PHC incentives and penalties, or a fundholding system (United Kingdom, Estonia, Spain):

Budgets will be allocated to each GP for the purchase of secondary and tertiary healthcare (as well as to cover salaries, premises, diagnostic tests). If the GP exceeds his/her budget, s/he is penalized. The GP gets to keep a percentage of budget savings.

Referrals will be medically reviewed to avoid under-provision.

(II26) Introduce GP target income and adjust services and fees to reach it (perhaps by using tax credits).

(II27) Provide GPs and other types of primary and secondary healthcare providers with financial incentives to relocate to remote and rural areas

(II28) Render clinical and best practice guidelines mandatory (not merely recommended)

(II29) Encourage managed care (peer review panels, pre-approval procedures for surgery, case management for the chronically ill, formularies limiting pharmacy reimbursement to an approved list, and other contractual provisions).


Risks of privatization and private non-managed, imperfect competition: market failure, as patients received too many unnecessary services, due to fee-for-service reimbursement and information asymmetry.

The Law and regulatory framework should explicitly allow for the following:

 (III0) Allow private primary healthcare physicians to offer preventive care, treatments and interventions after office hours, emergency dental and medical care, emergency home treatment, preventive checkups for preschool and school children, patronage and polyvalent patronage services, and all other elements of comprehensive healthcare.

 (III1) Arrangements with the private sector and Private-Public Partnerships (PPP) for the provision of healthcare:

(III11) Service Contract (Dominican Republic), or Contracting-out

The government pays private entities - including doctors - to perform specific healthcare tasks, or to provide specific healthcare services under a contract. The private service providers can make use of state-owned facilities, if they wish, or operate from their own premises.

Payments by the government are usually based on capitation (a fixed fee for a list of services to be provided to a single patient in a given period, payable even if the services were not consumed) adjusted for the patients' demographic data and reimbursement for fee-for-service items.

(III12) Management Contract Outsourcing (Cambodia)

The government pays private entities to manage and operate public health care facilities, like clinics, or hospitals.

(III13) Lease (Romania since 1994)

Private entities - including doctors - pay the government a lump sum or monthly fees to use specific state-owned equipment, state-employed manpower, clinics, or complete public health care facilities.

The private entity is entitled to all revenues from its operations but also bears all commercial risks, is responsible for management and operations and liable for malpractice and accidents.  

The state is still responsible to make capital investments in the leased facility or equipment, but maintenance costs are borne by the private entity.

(III14) Concession and Build-Operate-Transfer (BOT) (Costa Rica)

Concession is exactly like a lease arrangement (see above) with one exception: the private entity is responsible for capital investment. In return, the contract period is extended and can be voided only with a considerable pre-advice.

In BOT (Build-Operate-Transfer) and ROT (Rehabilitate-Operate-Transfer) the capital investment involves the construction or renovation/upgrade of new healthcare facilities. The private entity uses the constructed facility to provide services. After a prescribed period of time has elapsed, ownership is transferred to the government.

(III15) Divestiture and Build-Own-Operate (BOO) (Texas, USA)

The law should permit the outright sale of state- owned health care facilities to a qualified private entity, including physician groups who band together to purchase previously state-run facilities.

Another possibility is a BOO scheme, in which the private entity contractually undertakes to add facilities, improve services, purchase equipment, or all three. 

(III16) Free entry

The law should allow qualified private providers to operate freely. Though regulated, these private firms will have no other relationship with the state.

Such entities would have to be licensed, certified, overseen, and accredited for expertise, safety, hygiene, maintenance, track record, liability insurance, and so on.

The state may choose to encourage such providers to locate in specific regions, to cater to poor clients, or to provide specific healthcare tasks or services by offering tax incentives, free training, access to public facilities, etc.

(III17) Franchising (Kenya, Pakistan, Philippines)

A private firm (franchisee) acquires a license from and shares profits with the franchisor (a domestic, or, more often, foreign firm). The franchisee uses the brand name, trademarks, marketing materials, management techniques, designs, media access, access to approved suppliers at bulk (discounted) prices, and training offered by the franchisor. The franchisor monitors the performance and quality of service of the franchisee.

This model works mainly in preventive care, family planning, and reproductive health.

The World Bank ("Public Policy for the Private Sector", Note number 263, dated June 2003):

"Franchisers in the health sector, often supported by international donors and nongovernmental organizations (NGOs), establish protocols, provide training for health workers, certify those who qualify, monitor the performance of franchisees, and provide bulk procurement and brand marketing."

(III18) Allow Charities and Not-for-profit organizations to run health insurance funds and a variety of providers (including full-scale secondary and tertiary healthcare institutions).

(III9) Voluntary Health Insurance (substitutive; complementary; and complementary), subject to open enrollment periods and mandatory coverage of dependants (to prevent cream-skimming and adverse selection).


The Law and regulatory framework should explicitly allow for the following:

 (IV0) Institute co-payments for examination by a GP, emergency medical care, and certain preventive programs.

(IV01) Introduce negative co-payments: rebates or credits (to be deducted from future contributions) to insured persons who, in the preceding year, did not use services and did not consume interventions or drugs from the positive list above a level determined by the Ministry of Health.

(IV02) Introduce provider co-payments for hospital stays above the European Union average. Whenever the length of stay exceeds the EU average, the provider (hospital) will make a co-payment to the Health Insurance Fund or to the insurer.

(IV1) Voucher System (Nicaragua)

The law should allow for experimenting with novel payment and resource allocation techniques, such as vouchers or prepaid health cards distributed to needy populations and guaranteeing free basic service packages provided by a limited list of clinics or other healthcare facilities. Such schemes can also be managed by the private sector.

(IV2) Medical Savings Accounts (Singapore)

Allows or mandates people to place money in (tax-free) savings accounts to be used only for medical expenses, usually in conjunction with the purchase of a catastrophic stop-loss health insurance plan.

Contributions by employers and employees accumulate over time and are used, tax-free, to pay for hospital expenses in public and private hospitals, national supplementary health insurance premiums, special procedures (including abroad), and expensive outpatient treatment and drugs for the saver and his immediate family.

(IV3) Consumer Organizations and Community Healthcare Financing

Consumer organizations in the healthcare field (such as buyers' clubs or Health Maintenance Organizations-HMOs owned by cooperatives, NGOs, municipalities).

These groups will shop and tender for the best, most reasonably priced, and most efficient healthcare services for their members (Switzerland).

Example: HMO in USA – Integrated Model of Healthcare

(Source: WHO)

Health maintenance organization (HMO) is US health care sector term. It is an organization that contracts to provide comprehensive medical services (not patient
reimbursement) for a specified fee each month.

The term health maintenance organization arose because doctors under this arrangement have a financial incentive to keep their patience healthy, since they are not paid more for providing more services.

Health maintenance organizations, which focus on providing patients comprehensive medical care and pay doctors a specified monthly fee, have become increasingly popular in the United States, prompted by high costs from the previous fee-for-service, traditional indemnity health insurance plans.

In this model, doctors are typically paid by salary and hospitals are typically funded by global budgets. Benefits are supplied to patients in-kind, often free of charge. The public version of this model involves government financing and provision of health care and is often funded mainly out of general taxation. In the US, the voluntary form of this model is better known as the staff model of the health maintenance organisation. “Integration” as such is not only used for integrated model, but also for types of care provisions in which providers offering differing services (e.g., ambulatory care, inpatient care, rehabilitative care) provide them in an integrated way.

(IV4) Voluntary Health Insurance (substitutive; complementary; and complementary) with the right to apply one’s contributions to pay the premium and the right to switch insurers annually.

(IV51) Earmark a percentage of vice (sin) taxes, customs duties, VAT, and excise (on alcohol and tobacco; drugs and medications) for healthcare purposes.

(IV52) Reform healthcare budgeting. All healthcare budgets (including the budgets of the Ministry of Health; of hospitals, clinics, and primary healthcare facilities) will include amortization (and capital investments), goodwill and intellectual property, and intangibles (such as environmental externalities).

(IV6) Allow providers to retain a percentage of the user-fees they collect.

(IV7) Means-tested system: affluent and certain constituencies will be excluded from coverage (Netherlands, Germany) or pay much higher co-payments, co-insurance, or deductible (cost-sharing).

In such a system, private insurers administer compulsory insurance for the excluded groups (e.g., civil servants in Netherlands).

(IV8) Introduce VAT on hospitals to encourage investment, the purchase of medications, the retention of external services (e.g. training, skilling, continued education, management consultancy, auditing, etc.), where the hospitals can deduct VAT and retain it as an addition to their own budget.

(IV9) Community rating system vs. Demographically-adjusted or experience-rated premiums (e.g., the old and sick pay more than the young and healthy or vice versa; people with dependants pay more than insured or subscribers without dependants, etc.)

(IV10) Blind Fundholding: Financial resources for health care are allocated on a per capita basis; financial resources are held in a fund; and the general practitioner is usually the decision-maker for allocating the funds to purchase hospital and community services (with the patient choosing the providers, not the GP as was the case in the United Kingdom).


The Law and regulatory framework should explicitly allow for the following:

(V1) Citizen-centered and Mobile Healthcare

(V12) Provide a legal framework for health data transfer

(V13) Harmonize confidentiality and privacy laws

(V14) Establish legal liability or waiver thereof for e-treatment

(V15) Settle issues of entitlement and reimbursement

(V16) Encourage Medical e-Tourism (inbound telemedicine)

(V17) Provide for infrastructure and interoperability

(V18) Permit and licence Web Health and (outbound) Telemedicine (laws, regulations, forms)

(V19) Establish early warning systems

(V110) Foster patient-driven comparative indicators (e.g., online rating of professionals and providers) and empower patient organizations

(V111) Electronic European Health Insurance Card

(V112) Each citizen (or his/her custodian) will have full access to a personal Health Home Page with his EMR (Electronic Medical Records)/EPR (Electronic Patient Record)/EHR (Electronic Health Record)


The Law and regulatory framework should explicitly allow for the following:

 (VI0) The Benefits Packages (basic and supplementary) to be decided by a conference of all stakeholders: Ministry of Health, patient groups and advocacy groups, and medical doctors associations, assisted by healthcare economists and experts.

(VI01) Consider the introduction of a Negative Benefits Package, listing only the interventions and services that are excluded from coverage. The interventions and services not on the Negative List are automatically covered.

(VI02) Consider exclusion of dental and oral care from the Benefits Package.

(VI03) Make preventive occupational health and safety measures, equipment, and training in the workplace mandatory. Re-establish occupational dispensaries in all workplaces with more than 100 workers.

(VI04) Generate annual National Needs Assessment reports (including technological needs assessment), including prioritized allocation of funding and foreign aid.

(VI05) Transform teaching hospitals into publicly-owned independent trusts (Italy, United Kingdom): the corporate type of hospital (hard budget; autonomous managers accountable to board; board accountable to government).

(VI1) Licencing and accreditation (including periodical renewal and relicencing by the doctors, dentists, and pharmacists chambers) will depend on continuing medical education (CME) and on education in management and finance for certain jobs (such as ward, clinic, and hospital directors).

All positions from ward doctor upwards will be subject to periodic review and open, public tenders.

(VI2) Private Sector Healthcare Monitoring and Regulatory Agency

The law should provide for the establishment of an agency to monitor and regulate private sector healthcare provision: compliance with contracts, servicing the indigent and the uninsured, imposing sanctions or "step-in" rights, and dispute resolution.

This agency will also maintain and supervise the operation of internal open-markets in the public sector; the outsourcing of primary care functions; and the purchase of primary care packages from private providers.

(VI3) Devolution (Finland)

Responsibility for the provision of some types of healthcare services (health promotion; preventive care; occupational health; mental health) and the allocation of inputs should be devolved to local authorities (municipalities), which will be required to produce budgets of needs vs. costs.

Consider possibility of turning municipalities to purchasers of secondary and tertiary healthcare from providers of their choice.

Local government will cover primary healthcare capital expenditures out of municipal taxes and fees and weighted capitation-based transfers from the central budget

The MoH will maintain a Fiscal Equalization Fund to ensure consistent quality and availability of healthcare provision across regions and localities.

(VI4) Health Academy

The Ministry should establish an Academy to train healthcare administrators with emphasis on systems administration and reform. The Academy will invite foreign experts as guest lecturers and teachers.

In conjunction with the Republic Institute for Health Protection, the Academy will co-maintain databases of case studies and evidence-based practices (feeding into the Cochrane Network) and the Medical Map of Macedonia.

(VI5) Campaign to encourage the public to consume generic drugs will be launched.

(VI6) External audit and cartel (antitrust) investigation regarding tertiary healthcare facilities.

(VI7) Wait Time Reduction Fund (Canada, 2004)

(VI8) National Waiting Times Guarantee

(VI9) Minister of Health Award of Excellence, presented annually to individuals and institutions of outstanding merit and excellence among healthcare professionals, purchasers, and providers of all types.


(VI10) Appoint a Health Ombudsman and consumer advocates in each major healthcare facility. Strengthen patients’ rights and the Patients’ Charter. Provide all patients (Or their custodians) with full access to their medical records; compensation for iatrogenic diseases; a statutory role for patients’ associations; and the establishments of commissions with patient representatives in all hospitals (France).




Uniform Emergency Number 


Neonatal Emergency Ambulance 


Health cabinets in schools 


Health Tourism 


(VI12) National Inventory of Medical Assets 


Extend the current central registry of all medical equipment in publicly-owned healthcare facilities to include private healthcare facilities


The Inventory should also profile medical personnel, real estate, fixtures, infrastructure, and other capital assets. 


(VI13) Coordinative Council for Social and Health Services: to plan and guarantee inter-sectoral action (together with the ministry of Social Welfare and Labor). 


(VI14) Publish standardized contracts, forms, and performance criteria (including qualitative clinical pathways and benchmarks) to reduce transaction costs.


Example: the National Health Service Frameworks in the United Kingdom provide a health strategy; list priority interventions, treatment guidelines and performance targets; and proffer model contracts.

(VI15) Medical and Health Technology Assessment Board (examples: NICE in United Kingdom or SBU is Sweden) to decide all purchases of technology in secondary and tertiary facilities;  to publish “Positive Lists” of technology for GPs and PHC facilities; and to obtain discounts on bulk purchases.

The WHO defines Health Technology Assessment as:

“Comprehensive evaluation and assessment of existing and emerging medical technologies including pharmaceuticals, procedures, services, devices and equipment in regard to their medical, economic, social and ethical effects.

The systematic evaluation of properties, effects and/or impacts of health care technology. Health Technology Assessment defines a multidisciplinary activity that systematically examines technical performance, safety, clinical efficacy and effectiveness, cost, cost-effectiveness, organisational impact, social consequences, legal and ethical aspects of the application of a health technology (European Commission, 1999, from EUR-ASSESS 1997).”

(VI16) National Health Accounts Institute

(Sources: WHO, OECD, USAID)

Will publish the Healthcare PPP (Purchasing Power Parity), taking into account prices of imported healthcare inputs. Indicators may include total health expenditure, public
expenditure, private expenditure, out-of-pocket expenditure, tax-funded and other public expenditure, social security expenditure, public expenditure on health.

The National Health Accounts will also provide the following annual data, analyses, and indicators:

Sectoral opportunity costs, the value of benefits foregone by failure to apply the
resources to the most productive alternative cost;

Sectoral marginal costs, the extra cost of increasing output by one unit;

Sectoral variable costs: costs that vary with changes in output volume, such as the material required to provide a service versus

Sectoral fixed costs: costs which do not vary with quantity or volume of output provided, at least in the short run (e.g. rent for space).

Sectoral direct costs: all the goods, services and other resources that are consumed in the provision of a particular service or area (e.g. hospital supplies), including medical costs (e.g. payments to providers, material) and non-medical costs (e.g. transportation to hospital);

Sectoral indirect costs: total sum of morbidity costs (goods and services not produced by the patient because of the illness), mortality costs (goods and services the person could have produced had the illness not been incurred and the person not died prematurely), and productivity cost (related to lost productivity incurred by an employee who leaves work to provide care for the patient);

Sectoral intangible costs: usually used in economic evaluation, to indicate features like pain, anxiety or grief, which cannot be directly quantified in monetary terms.

Sectoral resource costs are the resources used in the production of goods and services; user cost: cost to the user of purchasing or making use of a product.

Sectoral cost-effectiveness analysis (CEA), a type of analysis that compares interventions or programmes having a common measurement of health outcome in a situation where, for a given level of resources, the decision maker wishes to maximise the health benefits conferred to the population of concern;

Sectoral cost-utility analysis (CUA), a type of analysis that measures benefits in utility-weighted life-years (QALYs) and which computes a cost per utility-measure ratio for comparison between programmes;

Sectoral cost-benefit analysis (CBA), a type of analysis that measures costs and benefits in monetary units and computes a net monetary gain/loss or a cost-benefit ratio.

Outcomes research: the Institute will evaluate the impact of health care on the health outcomes of patients and populations, including an evaluation of economic impacts linked to health outcomes, such as cost effectiveness and cost utility. Outcomes research emphasises health problem- (or disease-) oriented evaluations of care delivered in general, real world settings; multidisciplinary teams; and a wide range of outcomes, including mortality, morbidity, functional status, mental well-being, and other aspects of health related quality of life.

Total expenditure on health: Total (or national) expenditure on health based on: Personal health care services + Medical goods dispensed to outpatients = Total personal expenditure on health + Services of prevention and public health + Health administration and health insurance = Total current expenditure on health + Investment into medical facilities = Total expenditure on health. 


Another formula is: total expenditure on health = * private health care expenditure + * public health care expenditure. 


(VI17) Hospital League Table and star ranking (like with hotels and restaurants) to include information made publicly-available in various media: number of patients treated; complication rates; waiting times; data about procedures; food and amenities; other quality measures. 


(VI18) Annual National Health Survey: will measure attitudes; customer satisfaction; emerging trends among purchasers and providers; and the increase or decrease in quality and performance standards as well as in capital investments.


Appendix: Social Values and the Health System


There are as many health systems and models as there are countries. This is because healthcare is a public good and, thus, reflects the social and cultural values of the societies that design and adopt them.


I. Social and Cultural Values


We should distinguish social and cultural values from economic and operational values. Efficiency, for instance, is an economic-operational value, not a social-cultural one. Equity (though often considered an economic criterion) is actually a normative social-cultural value whose pursuit often comes at a steep economic price and is non-efficient. Health systems can be categorized according to which class of values they emphasize: the American (US) health system is geared to satisfy economic-operational requirements while European health systems place a premium on social-cultural ones.


In this paper, I deal with three social-cultural constraints: solidarity, equity (vs. inequity), and progressivity (vs. regressivity), including the issue of redistribution. There are many other social-cultural values that I do not cover in here: fairness, dignity, and choice come to mind. Finally, I provide a discussion of the concept of "public good" in current literature.


II. Social Solidarity


Social solidarity is both vertical and horizontal and both contemporaneous and inter-generational.


Members of the same society ought to strive to share the burdens of the sick, the young, the poor, the weak, and the disenfranchised. This is usually done by transferring economic resources among population groups and by promoting fairness. At the same time, people should feel morally obliged to provide aid and succor to their peers and relatives, neighbors and colleagues, compatriots and friends by encouraging social cohesion and sharing of responsibilities (for instance, within the nuclear or extended family).


Such attitudes cut also across generations, so that the current generation is held answerable to future generations for their well-being and the reasonable fulfillment of their needs. This "solidarity across time" is at the foundation of most modern pension systems, for instance.


Some health systems are explicitly founded on social solidarity, others only implicitly so. However, there are health systems which partly or altogether eschew social solidarity as a defining principle and a determinant.


Health systems of the first type are usually universal, uniform, and comprehensive. They rely on tax revenues or a social insurance scheme or on a combination of both. Health systems of the second type depend on private insurance, are not universal, and are more diverse in the types of medical coverage offered (albeit this diversity comes with increased transaction costs).


Introducing means-testing (asking the rich to pay additional or higher user-fees, co-insurance, deductibles, or participation) does not affect social solidarity. On the contrary, taxing the rich to pay for the poor is the very essence of a solidary state. Similarly, introducing safety nets (such as voucher systems) is a solidary act. Whether such an approach is ideal, from the economic point of view is outside the scope of this paper.


III. Equity


There are three types of equity:


1. Equity of financing (affordability): can the poor, the unemployed, the homeless, the old, the young, the weak, the chronically sick, and the disenfranchised afford the healthcare offered? Are the expenses they have to incur catastrophic? Do certain expenditures (for instance user fees, or participation in the costs of medications) deter utilization? Do the payments reflect one's income or wealth, are they "fair"?


2. Equity of utilization (accessibility) is comprised of two components:


(i) Vertical equity: Can everyone access healthcare services and facilities and make use of them easily and equitably (on the same terms and conditions, regardless of income)? This type of equity correlates with the progressivity of the health system (see chapter below.)


(ii) Horizontal equity is the extent to which people with identical incomes are treated similarly. This type of equity correlates with the redistributive aspects of the health system (see chapter below.)


3. Equity of quality: Is the level of quality healthcare provided in all regions of the country and in rural vs. urban settings the same?


Medical savings accounts adversely affect equity because they skew economic incentives and the allocation of healthcare resources towards the rich and men. Women and the poor cannot save as much and have greater healthcare needs.


User fees may actually increase equity under certain conditions: (1) That the income they generate is targeted at the poor and the chronically ill (2) That the poor and chronically ill are exempted from paying them and (3) That the level of funding from other sources (taxes, contributions) is not reduced.


Devolution of healthcare services may create inequity as rich municipalities are able to spend more on healthcare than poorer ones. The government should create an equalization fund or use general tax revenue to transfer resources from wealthier to more destitute regions. Pooling of funds among regional or competing funds guarantees more equity.


Regional health insurance funds increase inequity as they are faced with the same problems described under "Devolution" above: poorer regions cannot compete with richer regions on the purchasing and provision of healthcare.


Social health insurance and tax-based healthcare financing maintain the same level of equity of financing. Negative co-payments (no-claim bonuses); income caps (or ceilings) on contributions; the inclusion of dependants in the coverage at no additional cost; and the extent of cost-sharing determine how equitable and progressive the social insurance scheme is.


The introduction of private health insurers and voluntary health insurance to compete with the statutory health insurance fund or even merely to complement or supplement it would increase inequity especially with regards to women and low-income groups. Women are usually charged higher premiums though their incomes are often lower than men's.


Risk-rated premiums decrease equity as they discriminate against the already ill and may deter them from seeking care. On the other hand, exemptions granted to specific population groups (and not based on income) increase inequity: the sick and the old may gain better access to quality healthcare than other, equally deserving beneficiaries.


Risk-adjusted (e.g., DRG) capitation systems enhance vertical equity.


Informal payments dramatically decrease equity because: (1) Access is restricted to those who can afford to pay (2) Payments terms and levels are arbitrary and changeable (3) Certain services and goods are rendered unaffordable (4) Public, more equitable services suffer (5) Lack of regulation creates variable quality of healthcare, fiscal irresponsibility, and lack of fairness.


IV. Progressivity and Redistribution


Though progressivity (and redistribution) are often conflated with equity, these are two separate issues. We can imagine a progressive system of health funding which is not equitable and can conceive of the reverse as well.


We say that healthcare funding is progressive when rich people pay more (as a proportion of their income) than poorer folk; the system is proportional when both rich and poor use up the same proportion of their disposable income to defray healthcare costs; it is regressive when poor people pay a higher portion of their income than the affluent to consume healthcare goods and services.


Progressivity largely determines whether there is a redistribution of resources from the rich to the government (not necessarily to the poorer segments of the population). How extensive and ubiquitous the redistribution from the government to the poor is depends on how involved the state is in the economy (in other words, it depends on the tax burden, the incidence of public spending, and on the absolute level of tax revenue, among other factors).


Tax-funded healthcare is progressive (assuming that most of the tax revenue is generated from direct taxes, not from consumption or indirect taxes which are regressive). It is less progressive than social health insurance when: (1) Indirect taxes constitute a major source of budget revenue and (2) The informal sector that does not pay taxes is large.


Earmarked ("sin", or hypothecated) taxes on alcohol, tobacco, motor vehicles, and medicines are regressive (though their regressivity is intentional as they are intended to deter consumption).


Social health insurance is generally less progressive than a tax-based system because it does not tax income from interest, rent, capital gains, and non-wage types of income. This is especially true when there is an income ceiling (above which contributions are not levied); when there are no exemptions for low-income groups; and when the rates are uniform regardless of the size of the wages they are levied on.


Still, Social health insurance is more redistributive than private insurers: (1) It charges uniform or community rates (2) It insures dependants at no extra cost (3) The length and extent of healthcare goods and services provided is not related to previous or cumulative contributions (4) It caters to the needs of the old (inter-generational redistribution). Still, this type of redistribution has negative economic effects (which are outside the scope of this paper).


The introduction of private health insurers to compete with the statutory health insurance fund is neutral as far as progressivity goes. Only where private insurance has supplanted social insurance as the main source of funding did regressivity increase markedly. Risk-rated premiums, however, are regressive.


Medical savings accounts have no regressive or progressive effect as they do not redistribute income. All types of savings are neutral as far as progressivity or regressivity go.


User fees are highly regressive, regardless of any supplementary policy measures (such as exemptions). Only the introduction of means-testing can reduce regressivity.


Informal payments are highly regressive as the poor are asked to pay a high proportion of their income or assets (even when they are charged less than richer patients).


Tax deductibility of healthcare expenses is highly regressive (people with higher income tax rates receive a higher deduction).

V. Public Goods, Private Goods

Contrary to common misconceptions, public goods are not "goods provided by the public" (read: by the government). Public goods are sometimes supplied by the private sector and private goods - by the public sector. It is the contention of this essay that technology is blurring the distinction between these two types of goods and rendering it obsolete.

Pure public goods are characterized by:

I. Nonrivalry - the cost of extending the service or providing the good to another person is (close to) zero.

Most products are rivalrous (scarce) - zero sum games. Having been consumed, they are gone and are not available to others. Public goods, in contrast, are accessible to growing numbers of people without any additional marginal cost. This wide dispersion of benefits renders them unsuitable for private entrepreneurship. It is impossible to recapture the full returns they engender. As Samuelson observed, they are extreme forms of positive externalities (spillover effects).

II. Nonexcludability  - it is impossible to exclude anyone from enjoying the benefits of a public good, or from defraying its costs (positive and negative externalities). Neither can anyone willingly exclude himself from their remit.

III. Externalities - public goods impose costs or benefits on others - individuals or firms - outside the marketplace and their effects are only partially reflected in prices and the market transactions. As Musgrave pointed out (1969), externalities are the other face of nonrivalry.

The usual examples for public goods are lighthouses - famously questioned by one Nobel Prize winner, Ronald Coase, and defended by another, Paul Samuelson - national defense, the GPS navigation system, vaccination programs, dams, and public art (such as park concerts).

It is evident that public goods are not necessarily provided or financed by public institutions. But governments frequently intervene to reverse market failures (i.e., when the markets fail to provide goods and services) or to reduce transaction costs so as to enhance consumption or supply and, thus, positive externalities. Governments, for instance, provide preventive care - a non-profitable healthcare niche - and subsidize education because they have an overall positive social effect.

Moreover, pure public goods do not exist, with the possible exception of national defense. Samuelson himself suggested [Samuelson, P.A - Diagrammatic Exposition of a Theory of Public Expenditure - Review of Economics and Statistics, 37 (1955), 350-56]:

"... Many - though not all - of the realistic cases of government activity can be fruitfully analyzed as some kind of a blend of these two extreme polar cases" (p. 350) - mixtures of private and public goods. (Education, the courts, public defense, highway programs, police and fire protection have an) "element of variability in the benefit that can go to one citizen at the expense of some other citizen" (p. 356).

From Pickhardt, Michael's paper titled "Fifty Years after Samuelson's 'The Pure Theory of Public Expenditure': What Are We Left With?":

"... It seems that rivalry and nonrivalry are supposed to reflect this "element of variability" and hint at a continuum of goods that ranges from wholly rival to wholly nonrival ones. In particular, Musgrave (1969, p. 126 and pp. 134-35) writes:

'The condition of non-rivalness in consumption (or, which is the same, the existence of beneficial consumption externalities) means that the same physical output (the fruits of the same factor input) is enjoyed by both A and B. This does not mean that the same subjective benefit must be derived, or even that precisely the same product quality is available to both. (...) Due to non-rivalness of consumption, individual demand curves are added vertically, rather than horizontally as in the case of private goods".

"The preceding discussion has dealt with the case of a pure social good, i.e. a good the benefits of which are wholly non-rival. This approach has been subject to the criticism that this case does not exist, or, if at all, applies to defence only; and in fact most goods which give rise to private benefits also involve externalities in varying degrees and hence combine both social and private good characteristics'.

VI. Is Healthcare a Public Good?

Healthcare used to be a private good with positive externalities. Thanks to technology and government largesse it is no longer the case. It is being transformed into a nonpure public good.

In theory, all forms of healthcare are exclusionary, at least in principle. It is impossible to exclude a citizen from the benefits of his country's national defense, or those of his county's dam. It is perfectly feasible to exclude patients from access to healthcare. This caveat, however, equally applies to other goods universally recognized as public. It is possible to exclude certain members of the population from being educated, for instance - or from attending a public concert in the park.

Public goods require an initial investment by the user or consumer (the price-exclusion principle, demanded by Musgrave in 1959, does apply at times). One can hardly benefit from the weather forecasts without owning a radio or a television set - which would immediately tend to exclude the homeless and the rural poor in many countries. It is even conceivable to extend the benefits of national defense selectively and to exclude parts of the population, as the Second World War has taught some minorities all too well. Similarly, user-fees are required in order to benefit from certain types of healthcare.

Nor is strict nonrivalry possible - at least not simultaneously, as Musgrave observed (1959, 1969). Our world is finite and so is everything in it (the principle of scarcity). The economic fundament of scarcity applies universally - and public goods are not exempt. There are only so many people who can attend a concert in the park, only so many ships can be guided by a lighthouse, only so many people defended by the army and police. This is called "crowding" and amounts to the exclusion of potential beneficiaries (the theories of "jurisdictions" and "clubs" deal with this problem).

Nonrivalry and nonexcludability are ideals - not realities. They apply strictly only to the sunlight. As environmentalists keep warning us, even the air is a scarce commodity. Technology gradually helps render many goods and services - books and education, to name two - asymptotically nonrivalrous and nonexcludable.

From the book "Funding healthcare: Options for Europe" (p. 216):

Substantial research shows that improving quality, efficiency and equity critically depends on supportive policy contexts and policy measures, and government capacity to implement policy effectively (Gilson et al. 1995; Kutzin 1995; Nolan and Turbat 1995; Bennett et al. 1996; Gilson 1997). Mills et al. (2001) identify the following as being the most critical:

• Decentralized retention of revenue to provide incentives to collect fees and

to allow local improvements in quality.

• Information systems for accounting, auditing and financial management that support management at all levels.

• Financial management skills, especially at sub-national levels where revenue is managed.

• Well-motivated staff with balanced financial incentives that encourage adopting new charging and management practices but discourage overzealous or illegal charging.

• A well-designed and appropriate exemption system, with information that permits the target group to be reached.

• Central leadership, training and guidance on implementing exemption policy and using revenue.

• Maintaining government funding levels to ensure that fee revenue is additional and can be used to improve quality and motivate staff.

• Public willingness and ability to pay.


Buchanan, James M. - The Demand and Supply of Public Goods - Library of Economics and Liberty - World Wide Web:

Ellickson, Bryan - A Generalization of the Pure Theory of Public Goods - Discussion Paper Number 14, Revised January 1972

Heyne, Paul  and Palmer, John P. - The Economic Way of Thinking - 1st Canadian edition - Scarborough, Ontario, Prentice-Hall Canada, 1997

Mossialos, Elias et al. (Eds.) - Funding healthcare: Options for Europe - Buckingham and Philadelphia, Open University, 2002

Musgrave, R.A. -  Provision for Social Goods, in: Margolis, J./Guitton, H. (eds.), Public Economics - London, McMillan, 1969, pp. 124-44.

Musgrave, R. A. - The Theory of Public Finance -New York, McGraw-Hill, 1959.

Pickhardt, Michael - Fifty Years after Samuelson's "The Pure Theory of Public Expenditure": What Are We Left With? - Paper presented at the 58th Congress of the International Institute of Public Finance (IIPF), Helsinki, August 26-29, 2002.

Samuelson, Paul A. and Nordhaus, William D. - Economics  - 17th edition - New-York, McGraw-Hill Irian, 2001

Samuelson, Paul A. - The Pure Theory of Public Expenditure - The Review of Economics and Statistics, Volume 36, Issue 4 (Nov. 1954), 387-9

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