## _wp07226

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---

### I. INTRODUCTION
- Situation:
  - The Slovak Republic is at a crossroads in health care reform with rollback of main measures from 2003–04.
  - Need: raise efficiency of health spending to place the health system on a financially sound footing and improve health outcomes.
- Paper structure (as presented):
  - Section II: recent reforms and fiscal challenges — conclusion: well-defined strategy needed to control fiscal cost over the medium term.
  - Section III: efficiency of health spending — immediate challenge: improve the mix of health care resources (doctors, hospital beds, pharmaceuticals); attention needed to pharmaceutical costs, doctors’ consultations, bed utilization, and outpatient contacts.
  - Section IV: recommendations — strengthen central oversight of public hospital finances; enhance role of private sector; reform financial arrangements.

### II. RECENT HEALTH REFORMS AND THE FISCAL CHALLENGE
- 2003–04 reform measures aimed at increasing private sector role:
  - Introduction of co-payments by patients.
  - Creation of voluntary health insurance.
  - Establishment of state-owned health insurance companies as joint-stock companies.
  - Changing status of several hospitals from self-managed government institutions to non-profit semi-independent entities.
- Government intervention and outcomes:
  - Government assumption of hospital debts that had been accumulating at an annual rate of 0.7 percent of GDP during 2000–02.
  - Health spending declined in 2004.
  - Debt and arrears of health institutions fell substantially in 2005 relative to 2004.
- Limitations of 2003–04 reforms:
  - Co-payments were relatively small: Sk20 for doctor visits and Sk50 per day of hospital stay.
  - Low take-up of voluntary health insurance due to high coverage of mandatory insurance.
  - Change in legal status of hospitals fell short of privatization goals.
  - Public opposition: 74 percent of respondents disagreed with the introduction of the health care reforms (Jevčák, 2006).
- Reversal by new government (assumed office June 2006):
  - Abolished co-payments for doctor visits and hospital stays.
  - Lowered co-payments for drugs significantly.
  - Limited profits and administrative spending of health insurance companies to 4 percent of their total expenditure.
  - Submitted legislation to change legal status of state-owned insurance companies from joint stock companies to public agencies.
- Measures to bolster finances:
  - VAT rate for most pharmaceuticals reduced from 19 percent to 10 percent.
  - Transfers to health insurance companies for insurance contributions for non-working population raised for the first quarter of 2007 from 4 percent to 5 percent of the minimum wage per insured person; this rate would revert back to 4 percent thereafter unless the health ministry formulates a plan for lowering the fiscal burden.
  - Health ministry identified some 6,200 hospital beds (about 16 percent of the total number of beds) deemed redundant and targeted for elimination; implementation depends on subnational governments (SNG).
- Fiscal outlook and risks:
  - Projected public resources for health sector: decline from 5.3 percent of GDP in 2007 to 5.1 percent during 2008–10.
  - Risk that wage increases and the rising cost of pharmaceuticals will crowd out other health spending, jeopardizing quality and likely resulting in additional arrears.

### III. COMPARATIVE ANALYSIS OF EFFICIENCY IN THE HEALTH SECTOR
- Overall spending and private share:
  - Total health spending: less than one-third of the EU–15 and OECD averages; above the median for the NMS–10.
  - Average annual per capita expenditure on health care during 2000–04 in PPP dollars: PPP$712.
  - Private sources share of that PPP$712: 11 percent (only the Czech Republic is lower at 9 percent).
- Resource and expenditure tilt:
  - Spending and resources tilted toward hospital care, pharmaceuticals, and wages.
  - Hospital bed availability: Slovak Republic 7.2 per 1,000; NMS-10 average 7.0; EU-15 average 5.5; OECD average 6.1.
  - Physicians per 1,000: Slovak Republic 3.1; NMS-10 average 3.0; EU-15 average 3.2; OECD average 3.0.
  - Health worker index (per 1,000): Slovak Republic 10.6; NMS-10 average 9.8; EU-15 average 13.0; OECD average 12.5.
  - Pharmacists (per 100,000): Slovak Republic 49.0; NMS-10 average 45.4; EU-15 average 82.5; OECD average 74.4.
  - Doctors’ consultations (per capita; average over 2002–03): Slovak Republic 12.7; NMS-10 average 10.9; EU-15 average 5.9; OECD average 6.9.
  - Bed occupancy (percent): Slovak Republic 68.6; NMS-10 average 72.7; EU-15 average 74.3; OECD average 76.2.
  - Inpatient care admissions (per 100): Slovak Republic 18.5; NMS-10 average 21.2; EU-15 average 17.9; OECD average 18.6.
  - Average length of stay (days): Slovak Republic 8.9; NMS-10 average 8.6; EU-15 average 8.4; OECD average 8.4.
  - Outpatient contacts (per capita): Slovak Republic 13.0; NMS-10 average 8.8; EU-15 average 5.4; OECD average 7.0.
- Pharmaceuticals:
  - Public pharmaceutical expenditure (percent of public health expenditure; 1999–2002 averages): Slovak Republic 31.8; NMS-10 average 22.7; EU-15 average 13.4; OECD average 14.1.
  - Public and private pharmaceutical expenditure (percent of total health exp.): Slovak Republic 34.8; NMS-10 average 26.1; EU-15 average 15.4; OECD average 17.4.
  - Public pharmaceutical expenditure (PPP$ per capita): Slovak Republic 180.8; NMS-10 average 148.0; EU-15 average 200.4; OECD average 184.9.
  - Public and private pharmaceutical expenditure (PPP$ per capita): Slovak Republic 220.8; NMS-10 average 238.4; EU-15 average 334.6; OECD average 330.9.
- Health outcomes (comparative):
  - HALE (years): Slovak Republic 66.2; NMS-10 average 65.3; EU-15 average 71.3; OECD average 70.7.
  - Standardized death rates (per 100,000): Slovak Republic 945.0; NMS-10 average 971.5; EU-15 average 628.9; OECD average 672.2.
  - Infant mortality rate (per 1,000): Slovak Republic 6.0; NMS-10 average 8.1; EU-15 average 4.3; OECD average 4.6.
  - Measles immunization (percent; 2004): Slovak Republic 98.0; NMS-10 average 97.0; EU-15 average 89.7; OECD average 91.8.
- Summary: Health outcomes in the Slovak Republic are close to the NMS-10 average but significantly worse than EU-15 and OECD averages; HALE in the Slovak Republic is 66 years, five years less than the EU-15 and OECD averages.

### IV. KEY DATA: SELECTED TABLES (preserved figures)
- Table 1. Total and Public Health Expenditures, 2000–07 (Percent of GDP)
  - Public expenditure on health: 2000: 4.9; 2001: 5.0; 2002: 5.1; 2003: 5.2; 2004: 5.1; 2005: 5.2; 2006: 5.2; 2007: 5.3.
  - Total expenditure on health: 2000: 5.5; 2001: 5.6; 2002: 5.7; 2003: 5.9; 2004: 5.8; 2005: n/a; 2006: n/a; 2007: n/a.
- Table 2. Health System Outstanding Debt and Arrears, 2004–06 (billion Sk and percent of GDP)
  - Debt (billion Sk) — Total: 2004: 19.3; 2005: 6.4; 2006: 7.5.
  - Health institutions debt (billion Sk): 2004: 17.1; 2005: 5.2; 2006: 7.4.
  - Ministry of Health debt (billion Sk): 2004: 13.9; 2005: 2.8; 2006: 5.1.
  - Insurance companies debt (billion Sk): 2004: 2.2; 2005: 1.2; 2006: 0.1.
  - Arrears (billion Sk) — Total: 2005: 5.6; 2006: 6.8.
  - Arrears as percent of GDP — Total arrears: 2005: 0.4; 2006: 0.4.
- Table 3. Public Spending on Health Care, 2005–10 (In percent of GDP)
  - Health insurance companies — Revenues: 2005: 5.0; 2006: 5.0; 2007: 5.0; 2008: 4.9; 2009: 4.9; 2010: 4.9.
  - Insurance contributions from budget: 2005: 1.5; 2006: 1.4; 2007: 1.5; 2008: 1.4; 2009: 1.3; 2010: 1.3.
  - Other insurance contributions: 2005: 3.4; 2006: 3.5; 2007: 3.5; 2008: 3.5; 2009: 3.5; 2010: 3.5.
  - Expenditure (insurance companies): 2005: 5.0; 2006: 5.0; 2007: 5.0; 2008: 4.9; 2009: 4.9; 2010: 4.9.
  - Health care spending (insurance companies): 2005: 4.5; 2006: 4.6; 2007: 4.7.
  - Pharmaceuticals (insurance companies): 2005: 1.8; 2006: 1.9; 2007: 1.8.
  - Public expenditure on health (aggregate): 2005: 5.2; 2006: 5.2; 2007: 5.3; 2008: 5.1; 2009: 5.1; 2010: 5.1.

### V. RELATIVE EFFICIENCY ANALYSIS (DEA results and interpretation)
- Conceptual framing:
  - Two stages: cost effectiveness (efficiency of spending on intermediate outputs/real resources) and system efficiency (how intermediate outputs/resources are used to achieve health outcomes). Overall efficiency links health expenditure with health outcomes.
- DEA findings:
  - Slovak Republic overall spending efficiency is on par with OECD and NMS-10 countries.
  - Slovak Republic ranks at the 54th percentile for public health expenditure efficiency among OECD and NMS countries (placing it in the 51-75 quartile).
  - When including private health expenditures, Slovak Republic ranks at the 22nd percentile for total spending efficiency.
  - Inefficiencies primarily occur in transforming intermediate health resources into health outcomes (system efficiency is relatively low); cost effectiveness is relatively higher due to low input prices.
- Table 8 (rank ratios relative to OECD average; ratios above 1 imply less efficient than OECD average)
  - System efficiency (intermediate resources to outcomes): Slovak Republic: 1.7; NMS-10 average: 1.7; EU-15 average: 0.9.
  - Overall efficiency (public expenditures to outcomes): Slovak Republic: 1.1; NMS-10 average: 1.1; EU-15 average: 1.0.
  - Overall efficiency (public and private expenditures to outcomes): Slovak Republic: 0.4; NMS-10 average: 0.8; EU-15 average: 1.1.
- Sustainability concern:
  - Producing a mix of intermediate resources compatible with a modernized health system would likely require substantially higher spending levels (for reorganizing hospital care and employing high-quality health workers).

### VI. CORRELATION ANALYSIS — FACTORS ASSOCIATED WITH RELATIVE EFFICIENCY
- Method: simultaneous multi-correlation analysis; correlations reported are independent of GDP per capita differences unless otherwise noted; does not establish causality.
- Key associations:
  - Out-of-pocket spending:
    - Out-of-pocket expenditure (percent of private health expenditure) is highly associated with higher overall health expenditure efficiency.
    - In the Slovak Republic virtually all private health expenditures are out-of-pocket; private share is 11 percent of total health expenditure.
  - Pharmaceuticals:
    - Spending on pharmaceuticals is associated with lower system efficiency; pharmaceutical expenditure (PPP per capita and percent of total health expenditure) shows negative correlation with system efficiency.
  - Service utilization measures:
    - System efficiency is negatively correlated with the number of doctors’ consultations and both inpatient admissions and outpatient contacts.
    - Doctors’ consultations: Slovak Republic 12.7 per capita (2002–03 average) versus NMS-10 average 10.9 and EU-15 average 5.9.
  - Collective care and administration:
    - Expenditures on collective care and on administration are associated with lower efficiency.
- Table 9 summaries (significance notation preserved in source):
  - Out-of-pocket expenditure: positive association with HALE and negative associations with death, infant, and child mortality.
  - Pharmaceutical expenditure (percent of total health exp.): negative correlations with system efficiency across outcomes (multiple negative notations in source).
  - Doctors’ consultations per capita: negative association with system efficiency and specific outcomes.

### VII. CONCLUSIONS AND POLICY RECOMMENDATIONS
- Overarching conclusions:
  - A well-defined strategy is needed to control the fiscal cost of health care over the medium term.
  - Immediate challenge: improve the mix of health care resources (doctors, hospital beds, pharmaceuticals) while containing public health spending given medium-term fiscal consolidation objectives.
  - The Slovak Republic shows relatively high cost effectiveness but low system efficiency.
- Specific recommended measures to raise efficiency and contain costs:
  - Restrain pharmaceutical spending:
    - Introduce a national procurement system for pharmaceuticals to enhance bargaining power of public hospitals.
    - Introduce incentives for generic substitutes (for example, allow pharmacies to share the spread between the discounted price on generic substitutes and the full price of branded pharmaceuticals).
    - Improve pharmaceutical pricing and reimbursement policy of the ministry of health and make it more transparent (for instance, make the Pharmaceutical Reimbursement Commission more independent).
  - Reduce reliance on hospitals and contain cost of hospital care:
    - Eliminate excess hospital beds; government plans to eliminate 6,200 beds are an important step.
    - Impose hard budget constraints on public hospitals:
      - Make the ministry of health and regional governments responsible for immediate measures to reduce hospital deficits.
      - Change hospital management, adopt time-bound action plans for improved financial management, close inefficient units, and require comprehensive and regular reporting by hospitals on debts and arrears.
      - Hospitals could share resources obtained by cost reduction; penalties for inaction should be taken.
      - In the medium term, encourage definition of Diagnostic Related Group protocols to ensure adequate compensation for expensive treatments.
    - Restart hospital privatization where appropriate; consider subsidies for hospitals in the poorest regions; retain government control over a limited number of “hospitals of last resort.”
  - Reintroduce co-payments for doctors’ visits and hospital care to contain doctors’ visits and prescriptions and optimize utilization of abundant hospital beds.
  - Enhance incentives for competition and more cost-effective administrative arrangements:
    - Reimburse general practitioners by capitation rather than fee-for-service or salary, or have practitioners act as virtual purchasers from insurance companies with allocated budgets.
    - Define a stricter basic health care package to allow room for private supplementary insurance and increase competition.
  - Governance and regulatory measures:
    - Increase power of antitrust authority and enhance autonomy and independence of the Health Care Supervisory Board; shift appointments from government to parliament or to the president.
    - Monitor the sector (including the Pharmaceutical Reimbursement Commission), sanction anticompetitive and unethical behavior, and enhance transparency.
  - Private insurance regulation:
    - Refrain from introducing new limitations on profits of private insurance companies; allow profit-making in an appropriate regulatory environment to preserve private sector involvement and incentives for cost-effective care.
- Implementation priorities:
  - Immediate focus on changing the mix of real resources: containing pharmaceutical costs; containing doctors’ consultations; containing bed utilization and outpatient contacts; reducing number of hospital beds.
  - Strengthen central oversight and accountability to ensure implementation of efficiency-enhancing measures.

*Source: IMF staff paper (excerpts and tables as presented in the PDF content unit)._

### References..............................................................................................................

### _wp07226 - References..............................................................................................................

### I. INTRODUCTION
- The Slovak Republic is at a crossroads in health care reform with rollback of main measures from 2003–04.
- Need: raise efficiency of health spending to place the health system on a financially sound footing and improve health outcomes.
- Paper structure (as presented):
  - Section II: recent reforms and fiscal challenges — conclusion: well-defined strategy needed to control fiscal cost over the medium term.
  - Section III: efficiency of health spending — immediate challenge: improve the mix of health care resources (doctors, hospital beds, pharmaceuticals); attention needed to pharmaceutical costs, doctors’ consultations, bed utilization, and outpatient contacts.
  - Section IV: recommendations — strengthening central oversight of public hospital finances; enhancing role of private sector; reforming financial arrangements.

### II. RECENT HEALTH REFORMS AND THE FISCAL CHALLENGE OF HEALTH CARE
- Reform measures instituted during 2003–04 (aimed at increasing private sector role):
  - Introduction of co-payments by patients.
  - Creation of voluntary health insurance.
  - Establishment of state-owned health insurance companies as joint-stock companies.
  - Changing status of several hospitals from self-managed government institutions to non-profit semi-independent entities.
- Government assumption of hospital debts that had been accumulating at an annual rate of 0.7 percent of GDP during 2000–02.
- Immediate outcomes:
  - Health spending declined in 2004 (Table 1).
  - Debt and arrears of health institutions fell substantially (Table 2).
- Limitations of 2003–04 reforms:
  - Co-payments were relatively small: Sk20 for doctor visits and Sk50 per day of hospital stay.
  - Low take-up of voluntary health insurance due to high coverage of mandatory insurance.
  - Change in legal status of hospitals fell short of privatization goals.
  - Public opposition: an opinion poll found that 74 percent of respondents disagreed with the introduction of the health care reforms (Jevčák, 2006).
- Reversal by new government (assumed office June 2006):
  - Abolished co-payments for doctor visits and hospital stays.
  - Lowered co-payments for drugs significantly.
  - Limited profits and administrative spending of health insurance companies to 4 percent of their total expenditure.
  - Submitted legislation to change legal status of state-owned insurance companies from joint stock companies to public agencies.
- Measures to bolster finances:
  - VAT rate for most pharmaceuticals reduced from 19 percent to 10 percent.
  - Transfers to health insurance companies for insurance contributions for non-working population raised for the first quarter of 2007 from 4 percent to 5 percent of the minimum wage per insured person; this rate would revert back to 4 percent thereafter unless the health ministry formulates a plan for lowering the fiscal burden.
  - Health ministry identified some 6,200 hospital beds (about 16 percent of the total number of beds) deemed redundant and targeted for elimination; implementation depends on subnational governments (SNG).
- Fiscal outlook and risks:
  - At current rates, health insurance contributions and other public resources available for spending in the health sector are projected to decline from 5.3 percent of GDP in 2007 to 5.1 percent during 2008–10 (Table 3).
  - Risk that wage increases and the rising cost of pharmaceuticals will crowd out other health spending, jeopardizing quality and likely resulting in additional arrears.

### Key data: Tables 1 and 2 (selected figures preserved)
- Table 1. Slovak Republic: Total and Public Health Expenditures, 2000–07 (Percent of GDP)
  - Public expenditure on health: 2000: 4.9; 2001: 5.0; 2002: 5.1; 2003: 5.2; 2004: 5.1; 2005: 5.2; 2006: 5.2; 2007: 5.3.
  - Total expenditure on health: 2000: 5.5; 2001: 5.6; 2002: 5.7; 2003: 5.9; 2004: 5.8; 2005: n/a; 2006: n/a; 2007: n/a.
  - Source: WHO Europe, IMF staff estimates after 2004.
- Table 2. Slovak Republic: Health System Outstanding Debt and Arrears, 2004–06
  - Debt (including arrears) (billion Sk)
    - Total: 2004: 19.3; 2005: 6.4; 2006: 7.5.
    - Health institutions: 2004: 17.1; 2005: 5.2; 2006: 7.4.
    - Ministry of Health: 2004: 13.9; 2005: 2.8; 2006: 5.1.
    - Regional and local governments: 2004: 3.2; 2005: 2.4; 2006: 2.3.
    - Insurance companies: 2004: 2.2; 2005: 1.2; 2006: 0.1.
  - Arrears (billion Sk) for 2005 and 2006:
    - Total: 2005: 5.6; 2006: 6.8.
    - Health institutions: 2005: 4.4; 2006: 6.7.
    - Ministry of Health: 2005: 2.0; 2006: 4.4.
    - Regional and local governments: 2005: 2.4; 2006: 2.3.
    - Insurance companies: 2005: 1.2; 2006: 0.1.
  - Debt and arrears as percent of GDP:
    - Total debt: 2004: 1.4; 2005: 0.4; 2006: 0.4.
    - Health institutions debt: 2004: 1.3; 2005: 0.4; 2006: 0.4.
    - Ministry of Health debt: 2004: 1.0; 2005: 0.2; 2006: 0.3.
    - Regional and local governments debt: 2004: 0.2; 2005: 0.2; 2006: 0.1.
    - Insurance companies debt: 2004: 0.2; 2005: 0.1; 2006: 0.0.
    - Arrears as percent of GDP:
      - Total arrears: 2005: 0.4; 2006: 0.4.
      - Health institutions arrears: 2005: 0.3; 2006: 0.4.
      - Ministry of Health arrears: 2005: 0.1; 2006: 0.2.
      - Regional and local governments arrears: 2005: 0.2; 2006: 0.1.
      - Insurance companies arrears: 2005: 0.1; 2006: 0.0.
  - Sources: Ministry of finance and ministry of health.

### III. COMPARATIVE ANALYSIS OF EFFICIENCY IN THE HEALTH SECTOR
- Purpose: Identify sources of inefficiencies by comparing Slovak Republic with NMS–10 and OECD countries.
- Key comparative findings:
  - Total health spending in the Slovak Republic:
    - Less than one-third of the EU–15 and OECD averages.
    - Above the median for the NMS–10.
  - Share of private sector in total health care spending in the Slovak Republic: among the lowest in the EU.
    - Average annual per capita expenditure on health care during 2000–04 in PPP dollars: PPP$712.
    - Private sources share of that PPP$712: 11 percent.
    - Only the Czech Republic has lower private health spending at 9 percent of total health expenditure.
  - Resource and expenditure tilt:
    - Spending and resources are tilted toward hospital care, pharmaceuticals, and wages.
    - Hospital bed availability: in line with the NMS–10 average; higher than EU-15 and OECD averages.
    - Hospital bed occupancy rate and inpatient admission rate: lower in the Slovak Republic than in comparable countries (Table 4).
    - Use of outpatient and doctors’ services: high compared to other countries.
    - Spending on pharmaceuticals: higher in the Slovak Republic than in other NMS–10 countries (Table 5).
    - Compensation of employees: amounted to 44.6 percent of total spending by health facilities in 2004 (comparison cut off in source).
- Spending measured in PPP to enable cross-country comparison and avoid bias of percent-of-GDP measures.

### IV. TABLE 3 HIGHLIGHTS: PUBLIC SPENDING ON HEALTH CARE, 2005–10 (In percent of GDP)
- Health insurance companies — Revenues and Expenditure:
  - Revenues (selected years): 2005: 5.0; 2006: 5.0; 2007: 5.0; 2008: 4.9; 2009: 4.9; 2010: 4.9.
  - Insurance contributions from budget: 2005: 1.5; 2006: 1.4; 2007: 1.5; 2008: 1.4; 2009: 1.3; 2010: 1.3.
  - Other insurance contributions: 2005: 3.4; 2006: 3.5; 2007: 3.5; 2008: 3.5; 2009: 3.5; 2010: 3.5.
  - Other revenues: 2005: 0.1; 2006: 0.1; 2007: 0.1; 2008: 0.1; 2009: 0.0; 2010: 0.0.
  - Expenditure 1/: 2005: 5.0; 2006: 5.0; 2007: 5.0; 2008: 4.9; 2009: 4.9; 2010: 4.9.
  - Health care spending: 2005: 4.5; 2006: 4.6; 2007: 4.7; 2008: ...; 2009: ...; 2010: ...
  - Pharmaceuticals (selected): 2005: 1.8; 2006: 1.9; 2007: 1.8; 2008: ...; 2009: ...; 2010: ...
  - In-patient care: 2005: 1.1; 2006: 1.1; 2007: 1.3; 2008: ...; 2009: ...; 2010: ...
  - Out-patient care: 2005: 0.8; 2006: 0.8; 2007: 0.8; 2008: ...; 2009: ...; 2010: ...
  - Other (health): 2005: 0.7; 2006: 0.7; 2007: 0.7; 2008: ...; 2009: ...; 2010: ...
  - Non-health care spending: 2005: 0.5; 2006: 0.3; 2007: 0.4; 2008: ...; 2009: ...; 2010: ...
  - Administrative expenses and profit: 2005: 0.3; 2006: 0.3; 2007: 0.3; 2008: ...; 2009: ...; 2010: ...
  - Other (non-health): 2005: 0.2; 2006: 0.0; 2007: 0.0; 2008: ...; 2009: ...; 2010: ...
  - Note 1/: Includes profits.
- State budget (excluding transfers to insurance companies) — Expenditure:
  - Expenditure: 2005: 0.2; 2006: 0.2; 2007: 0.2; 2008: 0.1; 2009: 0.1; 2010: 0.1.
  - Current spending (administration, medical education, etc.): 2005: 0.1; 2006: 0.1; 2007: 0.1; 2008: 0.1; 2009: 0.1; 2010: 0.1.
  - Capital spending: 2005: 0.1; 2006: 0.0; 2007: 0.0; 2008: 0.0; 2009: 0.0; 2010: 0.0.
- Subnational governments and EU funds — Expenditure:
  - Expenditure: 2005: 0.0; 2006: 0.0; 2007: 0.0; 2008: 0.1; 2009: 0.1; 2010: 0.1.
- Public expenditure on health 2/: 2005: 5.2; 2006: 5.2; 2007: 5.3; 2008: 5.1; 2009: 5.1; 2010: 5.1.
  - Note 2/: Public expenditure is estimated as the sum of insurance contributions and spending by the state, subnational governments (SNG), and EU funds. This excludes spending from co-payments and other nonpublic financial sources.
- Source: Health Policy Institute (2007) and IMF staff estimates.

### V. POLICY-ORIENTED CONCLUSIONS (as stated in text)
- A well-defined strategy is needed to control the fiscal cost of health care over the medium term.
- Immediate challenge: improve the mix of health care resources (doctors, hospital beds, pharmaceuticals).
- Specific areas for policy attention: pharmaceutical costs, doctors’ consultations, bed utilization, outpatient contacts.
- Suggested reform elements: strengthen central oversight over public hospital finances; enhance the role of the private sector; reform financial arrangements.

*Source: IMF staff paper (excerpts and tables as presented in the PDF content unit)._

### 27.7 percent in the EU-15 (Institute for Health Information and Statistics, 2005, and

### _wp07226 - 27.7 percent in the EU-15 (Institute for Health Information and Statistics, 2005, and

### Health resources and utilization (Selected real health resources)
- Hospital beds (per 1,000):
  - Slovak Republic: 7.2
  - Bulgaria: 6.3
  - Czech Republic: 8.8
  - Estonia: 6.0
  - Hungary: 7.8
  - Latvia: 7.8
  - Lithuania: 8.7
  - Poland: 5.6
  - Romania: 6.6
  - Slovenia: 5.0
  - NMS-10 average: 7.0
  - EU-15 average: 5.5
  - OECD average: 6.1
- Physicians (per 1,000):
  - Slovak Republic: 3.1
  - Bulgaria: 3.6
  - Czech Republic: 3.5
  - Estonia: 3.2
  - Hungary: 3.2
  - Latvia: 3.0
  - Lithuania: 4.0
  - Poland: 2.5
  - Romania: 1.9
  - Slovenia: 2.3
  - NMS-10 average: 3.0
  - EU-15 average: 3.2
  - OECD average: 3.0
- Health worker index (per 1000):
  - Slovak Republic: 10.6
  - Czech Republic: 13.4
  - Estonia: 9.8
  - Hungary: 11.9
  - Lithuania: 12.4
  - Romania: 6.2
  - Slovenia: 9.4
  - NMS-10 average: 9.8
  - EU-15 average: 13.0
  - OECD average: 12.5
- Pharmacists (per 100,000):
  - Slovak Republic: 49.0
  - Czech Republic: 56.3
  - Estonia: 62.6
  - Hungary: 52.7
  - Lithuania: 70.2
  - Poland: 58.1
  - Romania: 4.8
  - Slovenia: 42.5
  - NMS-10 average: 45.4
  - EU-15 average: 82.5
  - OECD average: 74.4
- Doctors’ consultations (per capita; average over 2002–03):
  - Slovak Republic: 12.7
  - Czech Republic: 13.0
  - Hungary: 12.1
  - Lithuania: (not listed)
  - NMS-10 average: 10.9
  - EU-15 average: 5.9
  - OECD average: 6.9
- Bed occupancy (percent):
  - Slovak Republic: 68.6
  - Czech Republic: 74.6
  - Estonia: 68.4
  - Hungary: 75.7
  - Lithuania: 78.6
  - Romania: (not listed)
  - Slovenia: 70.1
  - NMS-10 average: 72.7
  - EU-15 average: 74.3
  - OECD average: 76.2
- Inpatient care admissions (per 100):
  - Slovak Republic: 18.5
  - Czech Republic: 22.1
  - Estonia: 19.2
  - Hungary: 25.5
  - Lithuania: 23.8
  - Poland: 17.6
  - Romania: 24.6
  - Slovenia: 17.6
  - NMS-10 average: 21.2
  - EU-15 average: 17.9
  - OECD average: 18.6
- Average length of stay (days):
  - Slovak Republic: 8.9
  - Czech Republic: 10.8
  - Estonia: 8.0
  - Hungary: 8.1
  - Lithuania: 10.2
  - Poland: 6.9
  - Romania: 8.0
  - Slovenia: 7.1
  - NMS-10 average: 8.6
  - EU-15 average: 8.4
  - OECD average: 8.4
- Outpatient contacts (per capita):
  - Slovak Republic: 13.0
  - Czech Republic: 15.2
  - Estonia: 6.8
  - Hungary: 12.9
  - Lithuania: 6.8
  - Poland: 6.0
  - Romania: 5.9
  - Slovenia: 7.2
  - NMS-10 average: 8.8
  - EU-15 average: 5.4
  - OECD average: 7.0
- Measles immunization (percent; 2004):
  - Slovak Republic: 98.0
  - Czech Republic: 97.0
  - Estonia: 96.0
  - Hungary: 99.0
  - Latvia: 99.0
  - Lithuania: 98.0
  - Poland: 97.0
  - Romania: 95.6
  - Slovenia: 94.0
  - NMS-10 average: 97.0
  - EU-15 average: 89.7
  - OECD average: 91.8
- Slovak Republic private health share:
  - Slovak Republic had only 11 percent of total health expenditures from private sources.

### Expenditure on pharmaceuticals (1999–2002 period averages)
- Public pharmaceutical expenditure (as a percent of public health expenditure):
  - Slovak Republic: 31.8
  - Czech Republic: 19.0
  - Hungary: 24.9
  - Poland: 15.0
  - NMS-10 average: 22.7
  - EU-15 average: 13.4
  - OECD average: 14.1
- Public and private pharmaceutical expenditure (as a percent of public and private health expenditure):
  - Slovak Republic: 34.8
  - Czech Republic: 22.2
  - Estonia: 23.3
  - Hungary: 28.1
  - Poland: 28.4
  - Slovenia: 19.8
  - NMS-10 average: 26.1
  - EU-15 average: 15.4
  - OECD average: 17.4
- Public pharmaceutical expenditure (PPP$ per capita):
  - Slovak Republic: 180.8
  - Czech Republic: 178.5
  - Hungary: 165.3
  - Poland: 67.5
  - NMS-10 average: 148.0
  - EU-15 average: 200.4
  - OECD average: 184.9
- Public and private pharmaceutical expenditure (PPP$ per capita):
  - Slovak Republic: 220.8
  - Czech Republic: 232.0
  - Hungary: 293.0
  - Poland: 208.0
  - NMS-10 average: 238.4
  - EU-15 average: 334.6
  - OECD average: 330.9
- Note: Data on pharmaceutical expenditure in Bulgaria, Latvia, Lithuania, and Romania are not available. Table includes other medical non-durables.

### Health outcomes (Table 6)
- HALE (years):
  - Slovak Republic: 66.2
  - Bulgaria: 64.6
  - Czech Republic: 68.4
  - Estonia: 64.1
  - Hungary: 64.9
  - Latvia: 62.8
  - Lithuania: 63.3
  - Poland: 65.8
  - Romania: 63.1
  - Slovenia: 69.5
  - NMS-10 average: 65.3
  - EU-15 average: 71.3
  - OECD average: 70.7
- Standardized death rates (per 100,000):
  - Slovak Republic: 945.0
  - Bulgaria: 1056.4
  - Czech Republic: 837.6
  - Estonia: 993.6
  - Hungary: 1015.5
  - Latvia: 1107.2
  - Lithuania: 1081.6
  - Poland: 872.0
  - Romania: 1076.4
  - Slovenia: 729.4
  - NMS-10 average: 971.5
  - EU-15 average: 628.9
  - OECD average: 672.2
- Infant mortality rate (per 1,000):
  - Slovak Republic: 6.0
  - Bulgaria: 12.3
  - Czech Republic: 3.9
  - Estonia: 5.7
  - Hungary: 7.2
  - Latvia: 9.8
  - Lithuania: 7.5
  - Poland: 7.1
  - Romania: 17.3
  - Slovenia: 4.0
  - NMS-10 average: 8.1
  - EU-15 average: 4.3
  - OECD average: 4.6
- Child mortality rate (per 1,000):
  - Slovak Republic: 8.5
  - Bulgaria: 15.0
  - Czech Republic: 4.4
  - Estonia: 8.0
  - Hungary: 8.0
  - Latvia: 11.9
  - Lithuania: 8.3
  - Poland: 7.5
  - Romania: 19.9
  - Slovenia: 4.3
  - NMS-10 average: 9.6
  - EU-15 average: 4.9
  - OECD average: 5.3
- Maternal mortality rate (per 100,000; estimate from 2000):
  - Slovak Republic: 10.0
  - Bulgaria: 32.0
  - Czech Republic: 9.0
  - Estonia: 38.0
  - Hungary: 11.0
  - Latvia: 61.0
  - Lithuania: 19.0
  - Poland: 10.0
  - Romania: 58.0
  - Slovenia: 17.0
  - NMS-10 average: 26.5
  - EU-15 average: 9.9
  - OECD average: 9.5
- Incidence of tuberculosis (per 100,000; 2004):
  - Slovak Republic: 18.8
  - Bulgaria: 36.1
  - Czech Republic: 10.8
  - Estonia: 45.9
  - Hungary: 26.0
  - Latvia: 67.7
  - Lithuania: 62.7
  - Poland: 28.5
  - Romania: 146.0
  - Slovenia: 15.2
  - NMS-10 average: 45.8
  - EU-15 average: 13.6
  - OECD average: 16.1
- Summary: Health outcomes in the Slovak Republic are close to the NMS-10 average but significantly worse than EU-15 and OECD averages. HALE in the Slovak Republic is 66 years, five years less than the EU-15 and OECD averages.

### Relative spending efficiency analysis (DEA results and interpretation)
- Conceptual framing:
  - Two stages: cost effectiveness (efficiency of spending on intermediate outputs/real resources) and system efficiency (how intermediate outputs/resources are used to achieve health outcomes). Overall efficiency links health expenditure with health outcomes.
- DEA findings:
  - Slovak Republic overall spending efficiency is on par with OECD and NMS-10 countries.
  - Slovak Republic ranks at the 54th percentile for public health expenditure efficiency among OECD and NMS countries (placing it in the 51-75 quartile).
  - When including private health expenditures (relatively low in the Slovak Republic), the Slovak Republic ranks at the 22nd percentile for total spending efficiency.
  - Inefficiencies primarily occur in transforming intermediate health resources into health outcomes (system efficiency is relatively low).
  - Cost effectiveness in the Slovak Republic is relatively higher, reflecting relatively low prices for labor and other inputs.
  - Despite spending levels, real resources in the health sector are relatively high.
- Table 8 (rank ratios relative to OECD average; ratios above 1 imply less efficient than OECD average):
  - System efficiency (intermediate resources to outcomes): Slovak Republic: 1.7; NMS-10 average: 1.7; EU-15 average: 0.9
  - Overall efficiency (public expenditures to outcomes): Slovak Republic: 1.1; NMS-10 average: 1.1; EU-15 average: 1.0
  - Overall efficiency (public and private expenditures to outcomes): Slovak Republic: 0.4; NMS-10 average: 0.8; EU-15 average: 1.1
- Sustainability concern:
  - Producing a mix of intermediate resources compatible with a modernized health system would likely require substantially higher spending levels (for reorganizing hospital care and employing high-quality health workers).

### Correlation analysis — factors associated with relative efficiency
- Method:
  - Simultaneous multi-correlation analysis; correlations reported are independent of GDP per capita differences unless otherwise noted.
  - Simultaneous correlation analysis does not provide causality.
- Key reported correlations and findings:
  - Out-of-pocket spending:
    - Out-of-pocket expenditure (percent of private health expenditure) is highly associated with higher overall health expenditure efficiency. In the Slovak Republic, virtually all private health expenditures are out-of-pocket; Slovak out-of-pocket share is very high given extremely low private health expenditures.
    - Higher co-payments in the Slovak Republic may help reduce inefficiencies between utilization and outcomes.
  - Collective care and administration:
    - Expenditures on collective care and on administration are associated with lower efficiency.
  - Pharmaceuticals:
    - Spending on pharmaceuticals is associated with lower system efficiency (high pharmaceutical expenditure tends to crowd out other health resources and reduces efficient use of real resources).
    - Pharmaceutical expenditure (PPP per capita and percent of total health expenditure) shows negative correlation with system efficiency in several specifications.
  - Service utilization measures:
    - System efficiency is negatively correlated with the number of doctors’ consultations and both inpatient admissions and outpatient contacts.
    - High numbers of doctor and hospital visits likely drive up prescriptions and medical tests; containing doctors’ consultations and outpatient contacts (which are very high in the Slovak Republic) may help reduce inefficient spending and resource use.
- Table 9 summaries (significance notation preserved):
  - Out-of-pocket expenditure (percent of private health exp.): Positive association with HALE and negative associations with death, infant, and child mortality (denoted +, ++ in table).
  - GDP per capita (PPP dollars): Negative correlation with overall efficiency measures in several specifications (denoted – – in table); for system efficiency, GDP per capita shows positive correlations with HALE and negative correlations with mortality measures (denoted ++).
  - Pharmaceutical expenditure (percent of total health exp.): Negative correlations with system efficiency across outcomes (denoted – – – – – – – – in table).
  - Doctors’ consultations per capita per year: Negative association with system efficiency and specific outcomes in table (denoted – – – –).
- Policy implication from correlations:
  - Changing the mix of real resources is key to improving system efficiency in the Slovak Republic. Potential levers include:
    - Containing pharmaceutical costs.
    - Containing doctors’ consultations.
    - Containing bed utilization and outpatient contacts.
    - Reducing the number of hospital beds.

### Additional findings and cross-study consistency
- Overstaffing of physicians and accompanying health staff relative to EU-15 appears to be a key issue; wage levels are low but union pressure for wage increases is rising; there is anecdotal evidence of health staff emigration to EU-15 countries.
- Other studies broadly consistent:
  - IMF (2007) finds Slovak Republic around NMS-10 average for overall input-oriented efficiency but substantially lower in converting resources into outcomes.
  - Mattina and Gunnarsson (2007) rank Slovak Republic among the worst for system efficiency using public-only spending as input.
  - Afonso and St. Aubyn (2007) rank Slovak Republic in bottom third for overall output-oriented efficiency and second-to-last for system efficiency.

*Sources: WHO; World Bank World Development Indicators database; OECD; IMF staff calculations; data notes as reported in source.*

### Appendix I).

### Appendix I)

### IV. CONCLUSIONS AND RECOMMENDATIONS
- Immediate challenge: improve health sector outcomes while containing public health spending given medium-term fiscal consolidation objectives and limited room for increasing health spending.
- Pressures on health spending: demands for wage increases and rising prices for pharmaceuticals.
- Efficiency imperative: increase the efficiency of spending to prevent deterioration in financial condition of health care institutions and achieve further gains in health outcomes.
- Current characterization: the Slovak Republic (like other NMS-10 countries) has relatively high cost effectiveness but low system efficiency.
- Areas to enhance system efficiency:
  - Contain the cost of pharmaceuticals.
  - Reduce reliance on hospital care.
  - Raise spending efficiency via higher out-of-pocket expenditure and more cost-effective administrative arrangements.
- Governance and incentives:
  - Introduction of the right incentives is critical; the system is decentralized and the central government has limited control over insurance companies and health care institutions.
  - A successful reform framework needs incentives for implementation, enhanced transparency, and improved accountability.

- Specific recommended measures to raise efficiency and contain health costs:
  - Restrain pharmaceutical spending:
    - Introduce a national procurement system for pharmaceuticals to enhance bargaining power of public hospitals.
    - Introduce incentives for generic substitutes (for example, allow pharmacies to share the spread between the discounted price on generic substitutes and the full price of branded pharmaceuticals).
    - Improve pharmaceutical pricing and reimbursement policy of the ministry of health and make it more transparent (for instance, make the Pharmaceutical Reimbursement Commission more independent).
  - Reduce reliance on hospitals and contain cost of hospital care:
    - Eliminate excess hospital beds; government plans to eliminate 6,200 beds are an important step.
    - Impose hard budget constraints on public hospitals:
      - Make the ministry of health and regional governments responsible for immediate measures to reduce hospital deficits.
      - Measures include changing hospital management (often replacing doctors in management positions with professional managers), adopting time-bound action plans for improved financial management, closing inefficient units, and comprehensive and regular reporting by hospitals on debts and arrears.
      - Hospitals could share resources obtained by cost reduction; penalties for inaction should be taken.
      - In the medium term, encourage health care providers and insurance companies to define Diagnostic Related Group protocols to ensure adequate compensation for expensive treatments.
    - Restart hospital privatization:
      - Most hospitals are controlled by the ministry of health or regional governments, are poorly managed, lack incentives, and lack resources for investments.
      - Private investors may bring managerial competence and resources; consider subsidies for hospitals in the poorest regions and retain government control over a limited number of “hospitals of last resort.”
  - Reintroduce co-payments for doctors’ visits and hospital care:
    - Contain number of doctors’ visits and prescriptions; co-payments for hospital stays may optimize utilization of abundant hospital beds and reduce in-care admissions rate.
  - Enhance incentives for competition and more cost-effective administrative arrangements:
    - Introduce incentives for practitioners to be cost-effective:
      - Reimburse general practitioners a lump-sum amount per patient (capitation) rather than fee-for-service or salary to reduce oversubscription.
      - Alternatively, practitioners could become virtual purchasers from insurance companies with allocated budgets; sharing resources obtained by cost reduction and penalties on over-prescribing could provide incentives.
    - Define a stricter basic health care package, allowing some variations in basic insurance premiums to create room for private supplementary insurance and increase competition.
  - Increase power of antitrust authority and enhance autonomy and independence of the Health Care Supervisory Board:
    - Monitor the sector (including the Pharmaceutical Reimbursement Commission), sanction anticompetitive and unethical behavior, and enhance transparency.
    - The Health Care Supervisory Board should become independent from the ministry of health; appointments should be shifted from government to parliament or to the president.
  - Refrain from introducing new limitations on profits of private insurance companies:
    - Limits on administrative costs and proposals to regulate profits aim to divert resources to providers, but forcing more expenditure on direct providers through regulation is unlikely to generate enduring cost savings and may reduce private sector involvement.
    - Allow profit-making for insurance companies and care providers in an appropriate regulatory environment to increase incentives for better care at lower costs.

### Appendix I. Technical Methodology — Overview
- Purpose: cross-country empirical methodology to investigate the relationship between spending and outcomes in the health sector; second-stage statistical analysis assesses whether differences between countries are due to non-discretionary factors or modifiable expenditure and policy factors.
- Two main components:
  - A. Estimation of Efficiency Scores Using Data Envelopment Analysis (DEA).
  - B. Second-Stage Analysis with Efficiency Scores.

### A. Estimation of Efficiency Scores Using Data Envelopment Analysis
- Scope: compare expenditure levels and health outcomes for the Slovak Republic, the ten Central and Eastern European new EU-member states, and other OECD countries using DEA.
- DEA purpose: estimate best-practice frontiers and relative efficiency; assess relationship between spending (inputs) and outcomes (production) across countries.
- Efficiency concepts:
  - Technical efficiency: how production units convert inputs into outputs.
  - Best-practice frontier derived from most efficient units; those units assigned an efficiency score of 1.
  - Focus here is on output-oriented efficiency scores (reflecting improvement in outputs achievable without increasing expenditures).
- One-input/one-production-item case:
  - Efficiency score for a unit (e.g., E) can be calculated as ratio of outputs achievable at maximum (frontier) to the outputs actually achieved, or as ratio of minimum inputs needed to actual inputs; the paper focuses on output-oriented scores since short-term needs require better outcomes without higher spending.
- Finite-sample bias and correction:
  - Estimation of the best-practice frontier with finite samples is subject to one-sided error (frontier may shift outward as more observations become available), leading to downward bias in estimated output-oriented efficiency scores (i.e., overestimation of efficiency).
  - Corrections via bootstrapping using method of Simar and Wilson (2000) under assumption of a smooth enveloping frontier.
  - Bootstrapping routine run in FEAR (software package by Paul W. Wilson) (Wilson, 2006).
  - Table 7 in the main text presents rankings for the NMS-10 countries relative to the OECD and EU sample based on bias-corrected efficiency score point estimates.
- Disaggregation to identify stages of inefficiency:
  - Two-stage chain: spending → intermediate outputs (real resources) → outcomes.
  - DEA results disaggregated to assess where inefficiencies arise: spending efficiency (overall spending→outcomes) and system efficiency (intermediate outputs→outcomes).
  - Construction of intermediate output indicator: index of countries’ average ranks for number of hospital beds, immunizations, physicians, health workers, and pharmacists per capita.
  - Efficiency scores calculated using intermediate output index as an input and associated outcomes (infant, child, and maternal mortality rates; HALE; standardized death rates; incidence of tuberculosis).
  - System efficiency rankings averaged, expressed as a ratio of the average OECD ranking, and compared with spending efficiency ratios.

- Notes on bootstrap convergence and dimensionality:
  - Convergence speed for estimator: n^(-2/(p+q+1)), where p is number of inputs and q is number of production items.
  - In the 1 input / 1 product cases of this paper, convergence speed is n^(-2/3).
  - This convergence is faster than standard parametric regression convergence n^(-1/2), allowing reasonable estimates with fewer observations.
  - However, convergence speed declines exponentially as the number of inputs and production items increases; already at two inputs and two production items the convergence speed is markedly slower, increasing difficulty of drawing conclusions from limited observations.

### B. Second-Stage Analysis with Efficiency Scores
- Purpose: explain observed differences in the spending–outcomes relationship to identify how the Slovak Republic can strengthen the link between spending and outcomes.
- Approach:
  - Use correlations and regressions of efficiency scores and associated factors to explain observed differences.
  - Due to small sample size, the paper relies on simple pair-wise correlations rather than full regression analysis.
  - Standard two-stage approach regresses DEA efficiency scores on explanatory variables, but direct estimation yields biased coefficient estimates because of serial correlation; corrections use bootstrap procedures of Simar and Wilson (2007).
- Role of GDP per capita:
  - Many factors associated with efficiency are closely related to income level; GDP per capita has a very strong negative impact on efficiency.
  - To avoid misattribution, the analysis considers only GDP per capita and factors correlated with efficiency independently of GDP per capita.
  - For factors strongly correlated with GDP, associations with efficiency are assessed by regressing the efficiency score on both GDP and the associated factor.

*Source: Appendix I) of the provided IMF working paper content.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2007/_wp07226.pdf_