Yesterday, my colleagues Mićo Mrkaić and Rado Pezdir, on behalf of INERHC (Institute for Economic Reforms in Health Care), organized a 'roundtable' discussion on the problem of general inefficiency of public spending in Slovenian health care sector. The given arguments have been thoroughly supported by the examination of the entire health care system in a publication called Health Economics, including the proposals to escape the financial and structural collapse of the currently highly inefficient sector of health care services in Slovenia which is based mainly on public funding.
Slovenian health care sector inherited a bulk of post-communist organizational and structural symptoms varying from a several lack of market mechanisms to failures of supply determination on nearly all levels of decision making and corporate governance. In 1973, Mark Pauly and Michael Redisched showed that non-profit public hospitals whose service and supply is determined out of the market mechanism framework, function, act and perform as socialist cooperatives.
In Slovenia, health care expenditures are not small-scaled, accounting for 6,4 percent of the GDP. Netherlands contributes 4 percent of the GDP expenditure to health care sector, Finland's expenditure rate is 6 percent, but the numbers turn differently when we rank the (in)efficiency of the allocation of resources and spending indicators and parameters in a multimple outcome health sector efficiency model. Using the estimates conducted by the IMF, Slovenia is ranked 18th (among 22 countries) in terms of efficiency score despite having a relatively high health care expenditure rate. Where is then the hidden trap which produces such low and uncompetitive efficiency rate? A part of the answer to this particular question lies in the cost structure of Slovenian health care sector. Mrkaić (2007) shows that labor costs present 57 percent of total sectoral costs which is a recording-breaking indicator in an international perspective.
On the other side, the indicators of capacity and productivity in Slovenian health care sector vary significantly among hospitals and physicians. The real deficiency of the incentive system in Slovenian health care sector is that annual salaries of physicians are determined through fixed collective agreements which do not reward the most productive physicians but fix their salary on the basis of collective bargaining compared to other employees in public sector which is (in Slovenia) the second biggest in the world (Fraser, 2006). It is thus quite unreasonable why the government and trade unions in the public sector preferably exclude the market mechanism of productivity measures of wage determination among public sector employees such as physicians.
According to European Observatory on Health Care Systems (2002), nearly 90 percent of the financial resources in health care sector are contributed from public funds, which is far more than in other transition countries such as Estonia and Hungary. Besides, in Slovenian system, we can find many annoying faults such as subsidies to generic industry, emerging from the absence of cost-benefit analysis in prescribing drugs to patients. In this case, generic industry receives a hidden rent at the expense of patients who pay the rent through a 22 percent employee contribution rate under the system designed by Bismarck which still remains rooted in many national health care systems around the globe.
One of the significant threats endangering the sustainability of mostly public funded Slovenian health care system is a demographic threat. As already known, Slovenia recently imposed one of the most generous retirement schemes in the world. The largest consumers of health care services are thus elderly whose treatment costs 4-5 times more than the treatment of youth and middle-aged population.
In addition, the growth of monthly pensions of Slovenian retirees is moving along the line of productivity growth twice a year and has been made permanent without the possible undertaking of the effects of long run pressures and volatility of public finance which remains the only source of financing the basic health insurance scheme.
The long-run effect of such a generous scheme is a severe outlift of the employer-employee contribution rate to cover the amount of expenditure flows into health care sector.
In addition, new and emerging technologies in health sector present a strong cost-push shock which spreads further possibility of unsustainable public finances in the middle run.
Above all, the proposals and solutions to avoid the breakdown of the health care system in Slovenia presented in INERHC's publication Health Economics go in the right direction suggesting a fundamental reform of the entire corporate and internal structure of the public-funded health care sector in Slovenia.