WORLD BANK GROUP Advancing health financing reforms toward universal health coverage in Kosovo Ha Thi Hong Nguyen, Tihomir Strizrep, Daniel Prinz, Mrike Aliu September 2023 WORLD BANK GROUP Advancing health financing reforms toward universal health coverage in Kosovo September 2023 Contents Executive Summary  6 1.  Introduction 9 1.1.  Advancing health financing reforms to contribute to universal health coverage goals 9 1.2.  The link between health financing and UHC 10 2.  Health and health financing in Kosovo 12 2.1.  Overview  13 2.2.  Resource mobilization and health spending  15 2.3.  Risk pooling  18 2.4.  Strategic purchasing  19 3. Shortcomings in UHC goals associated with health financing arrangements  22 3.1.  Insufficient public spending causes input constraints, poor access, and low quality of care 23 3.2.  Absence of strategic purchasing contributes to inefficiency  26 3.3.  Lack of effective pooling and a guaranteed benefit package necessitates high OOP payments and imposes financial risk on the population 27 4.  Advancing health financing reforms toward UHC goals - overall directions and next steps: policy recommendations  28 4.1.  Introducing strategic purchasing and provider-payer split 29 4.2.  Introducing a targeting mechanism for exemption in social programs to ensure fairness and fiscal sustainability  32 4.3.  Instituting an effective national risk pool  32 4.4.  Considerations for mobilizing additional resources for health 33 4.5.  Concrete short- and medium-term measures to develop capacity for strategic purchasing and risk pooling 35 Piloting the management of the Outpatient Drug Benefit Package (ODBP) by the HIF 36 Introduction of contracting and case-based payment for treatment outside the public sector 37 Gradually expanding performance-based capitation payment building on the experience of the KHP 37 References  38 Annex: Global good practices in health financing 41 Revenue generation  41 Pooling42 Purchasing43 4 This report was prepared by Ha Thi Hong Nguyen (Senior Economist), Tihomir Strizrep (Consultant), Daniel Prinz (Economist), and Mrike Aliu (Human Development Specialist). The team gratefully acknowledges guidance and comments from Tania Dmytraczenko (Practice Manager, Health, Nutrition and Population, Europe and Central Asia), Massimiliano Paolucci (Country Manager for Kosovo and North Macedonia), Ajay Tandon (Lead Economist), Marvin Plötz (Senior Economist), the Ministry of Health, the Board of the Health Insurance Fund, and participants of the Round Table on Advancing Health Reforms toward Universal Health Coverage on March 20, 2023, in Pristina, Kosovo. Richard Crabbe provided editorial services. This report was originally published as part of the 2023 Kosovo Public Expenditure Review. The Swiss Agency for Development and Cooperation provided partial funding to this work. The report is a product of the staff of the World Bank Group. The findings, interpretations, and conclusions expressed in this report do not necessarily reflect the views of the Executive Directors of the World Bank (or the governments they represent), or the Government of the Republic of Kosovo. 5 Executive Summary 1. Achieving improved health outcomes through fiscal spending would enhance human capital in Kosovo. The country lags peers in terms of amounts allocated for healthcare and on the effectiveness of public spending to improve health outcomes, reflected in weaker health outcomes compared to peers. 2. Appropriate health financing arrangements can promote progress towards universal health coverage (UHC). Simply, UHC means that all people have access to the health services they need, when and where they need them, and without causing financial hardship. Health financing arrangements are important in achieving UHC because they define how revenue is generated to pay for health services, how risks and costs are pooled across people, and how goods and services are purchased. Although public health services in Kosovo are envisaged to be free or subject to small user fees, in practice services and drugs are usually not fully available. As a result, patients incur significant out-of-pocket (OOP) expenditures which exacerbate existing income inequalities. Under such circumstances, sick people often carry the burden of funding their treatment. This financial burden can be particularly severe for the poor, or for people with chronic conditions who need medications on a regular basis. 3. Health financing in Kosovo has not yet been fully developed. Resource mobilization, and consequently health spending, is among the lowest when compared to peers. Insufficient public spending causes input constraints, poor access, and low quality of care. Risk pooling could be further enhanced, and the practice of strategic purchasing is currently lacking in Kosovo. Healthcare services are paid for with a predetermined budget defined annually based on rigid input line items such as salaries, goods and services, and utilities. There are no clearly stated decisions on the three key elements of strategic purchasing – benefit package, contracting, and provider payment. Other conditions necessary for strategic purchasing are absent. 4. Strategic purchasing and provider-payer split could be implemented independent of social health insurance premium collection. With the establishment of the Health Insurance Fund, Kosovo has introduced a purchaser, but it has not been performing strategic purchasing. 5. Introducing a targeting mechanism for exemption in social programs would ensure fairness and fiscal sustainability. Implementing a new poverty-targeting instrument that considers observable income through a means test and informal/unobservable income through a proxy means test could improve poverty targeting, better reflect the high rates of informality in the Kosovo labor market, and serve as a foundation for targeting health insurance exemption for the poor. Such a poverty-targeting mechanism would improve the effectiveness of the social protection system and enhance targeting of exempted categories regarding health service copayment and future insurance contributions. 6. Instituting an effective national risk pool would allow for sharing of health and financial risks among the rich and the poor, the sick and not sick, and across municipalities. An “effective mechanism” relies mostly on prepayment, delinking health status from payment at the point of services. With the small size of the population, it is recommended that risk is pooled at the national level. As a start, public financing for health should be consolidated to avoid fragmentation. Following the typical model in other countries, most of the funds (the “risk pool”) could be housed within the Health Insurance Fund, while the Ministry of Health would become a smaller financing agent. Budget funds going through the Ministry would then be used mostly for public health programs and major capital investment, while funds going through the Health Insurance Fund would be for individual services, which the Fund would purchase in its new role as a strategic purchaser. 7. The prospect of raising additional funds through a health insurance premium depends on a number of issues and warrants careful considerations. Before Kosovo embarks on mandating contributions, as currently envisaged in the draft Health Insurance Law, it is 6 important to obtain clarity on the potential impact on the labor market, the funding gap that is based on actuarial costing of the benefit package, enforcement capacity, population demand for social health insurance, and potential equity risk of the flat rate premium. Evidence from global experience shows that mobilizing contributions from payroll taxes alone will not bring countries closer to UHC. Invariably, segments of the population will need to be subsidized from general revenues. Despite recent improvements, the informal sector in Kosovo remains sizable. In this context, the general budget will ultimately remain the most important revenue source for health. 7 Abbreviations and Acronyms CHOICE Choosing Interventions that are Cost-Effective DCP3 Disease Control Priorities 3rd edition DRG Diagnosis-Related Group ELM Essential List of Medicines FFS Fee-for-Service FMC family medicine center GDP Gross Domestic Product HBS Household Budget Survey HFA Health for All HIF Health Insurance Fund HIL Health Insurance Law HZZO Croatian Health Insurance Fund KAS Kosovo Agency of Statistics KHP Kosovo Health Project KHUCS Kosovo Hospital and University Clinical Services MFMC main family medicine center MICS Multiple Indicator Cluster Survey MoH Ministry of Health MoF Ministry of Finance MOU memorandum of understanding MTOPHI Medical Treatment outside the Public Health Institutions NCD noncommunicable disease OOP out-of-pocket PHC primary health care SHI social health insurance THE total health expenditure UCCK University Clinical Center of Kosovo UHC universal health coverage WDI World Development Indicators WHO World Health Organization 8 1.  Introduction 1.1.  Advancing health financing reforms to contribute to universal health coverage goals 1. Health financing reforms in Kosovo have been stagnating over the last decades. While various governments have vowed to develop social health insurance (SHI), so far this has not been implemented. One of the possible reasons is that health financing, and health insurance in particular, are complex topics that do not immediately resonate with health sector players. The exclusive focus on SHI may distract attention from the fact that a health financing instrument should only serve as a means to an end. Structural issues in health financing arrangements hinder achieving the objectives of any health system – access, quality, equity, efficiency, and financial protection – generally accepted as universal health coverage (UHC) outcomes. To date, there is a lack of understanding of how current health financing practice has facilitated or hampered the country’s progress toward effective UHC. 2. The objective of this paper is to facilitate common understanding of the health financing situation in Kosovo, to serve as a basis for reaching a consensus on the way forward. The issue is motivated by a basic framework of health financing functions and how they contribute to UHC goals. Global good practices and examples from peer countries are presented in the Annex to provide comparisons with the situation in Kosovo.1 The chapter describes the status of health financing and its implications for UHC. A long-term vision for health financing is presented and recommendations for possible short and medium term (3-5 years) policy priorities are provided based on the current situation and desirable trajectory. The exclusive focus on health financing is deliberate although other important health system functions, such as service delivery and governance, will need to move in parallel for health financing reforms to achieve their intended outcomes. 3. Kosovo’s health financing system has important shortcomings which hinder its progress toward UHC. Driven by low government spending, Kosovo’s total health spending is lower than that of most peer countries. At the same time, private spending on health is high and increasing, which suggests that households are not well-protected against health shocks as they frequently must pay out- of-pocket (OOP), particularly for pharmaceuticals. Health services are often of low quality, leading to underutilization and poor health outcomes. The lack of strategic purchasing means that there are few incentives for providers to improve performance, resulting in significant inefficiencies in the system. Although public health financing relies exclusively on general taxation – a mechanism best designed to provide risk pooling across population groups – in reality, health benefits are too small and the financial burden of health care falls disproportionately on the sick and the poor. Additionally, the lack of a proper poverty targeting mechanism leaves many poor people uncovered while at the same time benefiting a significant number of nonpoor with copayment exemption in public health institutions, putting the financial viability of the system at risk. 4. To address the identified shortcomings, the following recommendations are proposed regarding the overall strategic directions for health financing functions and priorities for short- term measures: Kosovo government should introduce strategic purchasing and separate the payers and providers of health services to improve the efficiency and quality of services. To improve equity, instituting an effective national risk pool will be needed and options to mobilize additional resources should be considered carefully. Priority short-term measures that could bring about concerete results for the population include piloting the management of the outpatient drug benefit package by the Health Insurance Fund, introducing contracting and case-based payment for treatment outside the public sector, and gradually expanding performance-based capitation payments for primary health care. 1 In line with the overall Public Expenditure Review (PER), to the extent that data are available, peer countries include structural peers (Albania, Armenia, Moldova, North Macedonia, and Kyrgyz Republic), aspirational peers (Estonia, Lithuania, Latvia, Croatia, and Slovenia), and Western Balkan regional peers (Montenegro, North Macedonia, Bosnia and Herzegovina, Albania, and Serbia). 9 1.2.  The link between health financing and UHC 5. Health financing has three key functions: (i) resource mobilization, (ii) pooling, and (iii) purchasing.2 Resource mobilization incorporates the decisions to generate funds from different sources and allocate necessary resources to develop and run a health system. Sources of funds can include individuals/households, firms, the government, and sometimes external sources like development assistance. Some contributions are health-specific, while others contribute to general government revenues, which can be used to finance health. Pooling involves decisions about how financial contributions and risks are spread across individuals. It can range from OOP payments, where individuals/households pay directly for the services they obtain at the point of service, to funding services through a pre-payment system financed by general government revenues or health insurance. The third key function is purchasing, which includes decisions on what services and interventions to buy (“what to buy”) from which providers (“from whom to buy”), and the design of provider payment mechanisms and incentives (“how to buy”). 6. Appropriate health financing arrangements can promote progress towards UHC. The concept of UHC means that all people have access to the health services they need, when and where they need them, without causing financial hardship. Health financing arrangements are important in achieving UHC because they define how revenue is generated to pay for health services, how risks and costs are pooled across people, and how goods and services are purchased. It is important to note that improving health financing by itself alone will not achieve UHC. Health financing is one of several building blocks of a health system, along with service delivery and governance, and social determinants of health are also important contributors to good health outcomes.3 7. To achieve UHC, public financing should be the main source of funding for health. The two main revenue-raising modalities used for public financing are general taxation and health insurance contributions. In addition, countries increasingly tap into innovative taxes, such as health taxes on tobacco and alcohol, to mobilize additional resources that could be used for health. Health insurance contributions are raised mainly in the form of mandatory earmarked payroll taxes, and revenues from general taxation and health taxes may or may not be earmarked for health. Examples of earmarking general taxation for health include Brazil, where the Constitution includes a formula to mandate that a certain share of general revenues must be allocated to the service purchaser. Another example is Kyrgyz Republic, where the government is committed to spend at least 13 percent of its general expenditure on health under an agreement with donors of the Sector Wide Approach.4 Earmarking has several possible disadvantages, including introducing unnecessary rigidities in the budget process, additional economic distortions, procyclicality, and fragmentation. However, earmarking can help protect revenues for health and increase public support for paying taxes as well as introduce an element of accountability.5 Financing health systems from OOP spending is both inefficient and inequitable, exposing individuals and households to financial hardship when seeking care, including risk of higher and deeper impoverishment and risk of foregone care.6 2  Kutzin, J. 2001. A descriptive framework for country-level analysis of health care financing arrangements. Health Policy. 2001 Jun; 56 (3): 171-204. 3  For more details on other building blocks of the health system in Kosovo, see Nguyen et al. forthcoming 2023. “Kosovo Health System: An Assessment of Core Functions and Performance.” 4  World Bank. 2019. Primary Health Care Quality Improvement Program. Program Appraisal Document. Report number: PAD3083. 5  Cashin, C, S. Sparkes, and D. Bloom. 2017. “Earmarking for Health: From Theory to Practice.” Health Financing Working Paper No. 5. Geneva, Switzerland: World Health Organization. 6  Ajay Tandon, Christoph Kurowski, David B. Evans. 2022. “General Taxation and Social Health Insurance.” Washington, DC: World Bank. 10 8. Kosovo’s peer countries have adopted different combinations of funding sources and flow of funds arrangements from sources to key financing agents. In terms of revenue generation, countries do not rely exclusively on general taxation or mandatory insurance contributions. Drawing on both financing sources allows a government to cover segments of the population that would have been excluded from a system entirely financed from employment-based contributions. Typically, countries with a smaller formal sector rely more on general taxation, whereas countries with a larger formal sector rely more on insurance contributions. For example, between 87–90 percent of domestic public expenditure on health in Kyrgyz Republic in 2015–2017 came from the general budget, and mandatory health insurance contributions accounted for 10–13 percent.7 By contrast, in Croatia, Romania, and Slovenia, the share of mandatory health insurance contributions in total health financing is 65–70 percent.8 At the same time, regardless of sources of funds, countries can decide to channel most of their health revenues through the insurance agency or other form of service purchaser. For example, in Kyrgyz Republic, the Mandatory Health Insurance Fund manages about 80 percent of the total public spending on health. 9. Purchasing must be “strategic” to facilitate progress towards UHC and refer to the “what,” “from whom,” and “how” decisions. An explicit benefit package is preferable as it can help transparently prioritize services and guarantee access to those services. For contracting and paying providers, countries are moving toward output-based payment combined with incentives for quality and efficiency. Public financing can also be used to contract private providers to expand access and enable quality control by the purchaser. Further details on financing functions are presented in the Annex. 7  World Bank. 2019. Primary Health Care Quality Improvement Program. Program Appraisal Document. Report number: PAD3083. 8  Authors compilation. 11 2.  Health and health financing in Kosovo Chapter 2. Health and health financing in Kosovo 12 2.1.  Overview 10. Compared to most countries in the region, Kosovo has a relatively young population, which means that the incidence of and mortality from noncommunicable diseases (NCDs) remain relatively low but are increasing. Children under 15 currently account for almost a quarter of inhabitants, and only 9 percent of the population is aged 65 or above, compared to 15 percent in neighboring Albania and over 20 percent in most other peer countries. The young population puts Kosovo in a favorable position concerning health and healthcare cost, which will change once the population gets older. For example, cancer incidence in Kosovo in 2019 was 149 per 100,000 population, roughly one quarter of the rate reported for Croatia in the same year; the cancer mortality rate (non-age standardized) was also four times lower. The difference is less remarkable when Kosovo is compared to Albania.9 Despite having a relatively low incidence, NCDs represent major causes of death and their burden is increasing. Between 2012 and 2019, the number of diagnosed cases of breast cancer increased from 200 to 500 per 100,000 and the number of diagnosed cases of cancers of the female reproductive system increased from below 100 to nearly 300. The trend can be partly attributed to improvement in diagnosis and reporting, both of which remain inadequate. The increasing trend in NCDs may be fueled by widespread risk factors such as smoking, low physical activity, and unhealthy nutrition. 11. Some child health indicators have improved recently, yet they are still far behind most peer countries. Perinatal mortality, which reflects prenatal, childbirth and neonatal care has decreased from 17.3 per 1,000 live births in 2012 to 9 per 1,000 in 2020. Nevertheless, the infant mortality rate is still high in Kosovo. The number of deaths per 1,000 live births among children under one year of age in Kosovo is around that of Albania, but more than double than that of Croatia.10 According to the 2019-2020 Kosovo Multiple Indicator Cluster Survey (MICS), the probability of a child dying between birth and their fifth birthday is 15 per every 1000 births.11 The most frequent causes of infant mortality have been lower respiratory tract infections, acute infective diarrhea, perinatal issues, congenital malformations, and unclassified conditions, again pointing to weaknesses in the service delivery system. 12. The incidence of infectious diseases other than COVID-19 appears to be stable and is not a major contributor to the disease burden of the population. However, the incidence of tuberculosis is much higher than in peer countries. The incidence of tuberculosis in 2017 was 43 per 100,000 population, more than double the rate in neighboring Albania and nearly four times higher than in Serbia.12 Nevertheless, it has been on a slow decline in recent years. 13. In summary, Kosovo’s disease burden is characterized by an unfinished agenda of communicable and basic child health issues, coupled with rising NCDs. This pattern is typical for countries in the early stage of demographic and epidemiological transition. Examples of countries that have successfully gone through this period will be useful for Kosovo in developing proactive measures to curb the growth of NCDs and preempt healthcare cost escalation. 14. Kosovo’s health financing system is predominantly based on the Semashko model whereby the central government assumes the role of both provider and financier of healthcare services.13 This includes a centrally planned provision of health care within state-financed and state-owned health facilities. Health is financed from general tax revenues. Additionally, as under the Semashko model, the government recognizes all healthcare providers as public service employees. The private sector is licensed by the Ministry of Health (MoH) but is otherwise completely independent. The MoH is responsible for the development, implementation, monitoring, evaluation, and coordination of policies in the health sector, and the budget envelope for health is largely determined by the budget allocations and appropriations passed by the Assembly based on proposals from the Ministry of Finance (MoF). 9  A caveat is warranted about the possibility of underreporting in Kosovo due to unreliable health statistics. 10 Nguyen et al. “Kosovo Health System: An Assessment of Core Functions and Performance” (forthcoming, 2023). 11 UNICEF. MICS 2022. Available from https://www.unicef.org/kosovoprogramme/topics/multiple-indicator- cluster-survey (Accessed 25 April 2022) 12 UNICEF. MICS 2022. Available from https://www.unicef.org/kosovoprogramme/topics/multiple-indicator- cluster-survey (Accessed 25 April 2022) 13 The Semashko model of health care (named after the first Minister of Health in the former Soviet Union, Nikolai Semashko), is dominated by publicly owned medical facilities, salaried health workers, and an exceptionally high degree of governmental administration.  13 15. The legal framework for health financing has not been fully developed. The Law on Health and the Law on Emergency Medical Services defined the framework for regulation and governance of health services in Kosovo; these laws mainly cover service delivery. In 2014, Kosovo enacted a Health Insurance Law (HIL), which gave all citizens the right and obligation to carry mandatory SHI. To date, most provisions of the law have not been implemented and Kosovo is working on having an updated HIL enacted before taking any further steps to roll out SHI. Nevertheless, in connection with the previously enacted law, the country established a Health Insurance Fund (HIF) in 2016, which has been staffed with a small number of personnel. Until now, the HIF has only been responsible for the payment of treatment outside the public sector, mainly abroad, under the so-called “Medical Treatment outside the Public Health Institutions” (MTOPHI) program. 16. The public service delivery system consists of the University Clinical Center of Kosovo (UCCK, tertiary level), seven general hospitals in the regions (secondary level), and family medicine centers (FMCs) in 38 municipalities (primary level). Each municipality has a network of FMCs comprising one main family medicine center (MFMC) and several affiliated centers (with family doctors and nurses) or medical posts (with only nurses). The general hospitals and UCCK form the system of Kosovo Hospital and University Clinical Services (KHUCS), a centralized management structure of hospital services for the whole country. 17. Financing decisions for each major actor of the system rest with the Assembly based on budget proposals prepared by the MoF. As shown in Figure 1, the national budget transfers funds to the MoH for services under its control—mostly public health and outpatient drugs, to the KHUCS for secondary and tertiary services, and to local governments for PHC services. The HIF receives funding to cover its own operations and processes reimbursements for MTOPHI. Fig 1. Current flow of public funds Budget financing Health Insurance Fund Ministry of Health KHUCS Municipalities Wages and Salaries Wages and Salaries for Wages and Salaries Earmarked health for HIF staff public servants at MOH for hospital staff grant for PHC Goods, services, and Public health Goods, services, Wages and Salaries transfers (MTOPHI) and transfers for PHC staff Outpatient drugs Goods, services, for PHC and transfers Capital Investments for tertiary and secondary healthcare Source: Authors 14 18. The Government of Kosovo has consistently reiterated the development of SHI as a priority in various policy documents, yet progress so far is insufficient. The Health Sector Strategy 2017– 2021 envisioned ensuring sustainable health financing as one of the strategic objectives. According to this document, by the end of 2018: the HIL would be adopted, in addition to the legal framework needed to start premium collection; a list of basic outpatient services with costing would be drafted; and the outpatient drug benefit package would be finalized together with implementation modalities.14 By mid-2023, none of these objectives have been met. The Government Program of 2021–2025 again identified rolling out SHI as one of the priorities for the health system, which would be preceded by the adoption of the revised HIL and secondary legislation for premium exemption, co-payments, outpatient drugs, pharmacy contracting, and MTOPHI.15 Adoption of a law to amend the previous HIL was included in the legislative program of the MoH for 2022 but did not materialize. The National Development Strategy 2030, which recently passed through public consultations, foresees that the share of population covered by health insurance will reach 100 percent and current health expenditure as a share of Gross Domestic Product (GDP) will reach 10 percent in 2030, presumably enabled by the expansion of SHI.16 2.2.  Resource mobilization and health spending 19. Total health spending in Kosovo is lower than in most structural and aspirational peers in absolute value and as a share of GDP. In 2019, total health expenditure (THE) was estimated at US$226 per capita in nominal terms (Figure 2). That said, in terms of GDP differences were less pronounced, with Kosovo exhibiting similar health spending as Albania and exceeding spending in the Kyrgyz Republic (Figure 3). It is important to note that there is no specific optimal normative level or share of public financing for health across countries. Thus, while the level and share of Kosovo’s health spending relative to peers are described here, this should not be taken as suggesting a spending target. Fig 2. Total health spending per Fig 3. Total health spending as a capita (current US$), 2019 share of GDP (%), 2019 Slovenia 2219 Armenia 11.3% Estonia 1599 BiH 9.0% Lithuania 1370 Serbia 8.7% Latvia 1167 Slovenia 8.5% Croatia 1040 Montenegro 8.3% Montenegro 735 N. Macedonia 7.3% Serbia 641 Lithuania 7.0% BiH 554 Croatia 7.0% Armenia 524 Estonia 6.7% N. Macedonia 437 Latvia 6.6% Moldova 284 Moldova 6.4% Albania (2018) 275 Albania (2018) 5.2% Kosovo 226 Kosovo 5.1% Kyrgyz Rep. 62 Kyrgyz Rep. 4.5% 0 500 1000 1500 2000 2500 0% 5% 10% 15% Source: WDI, 2022 (peer countries) and authors’ Source: WDI, 2022 (peer countries) and authors’ calculations based on MoH and Household Budget calculations based on MoH and Household Budget Survey data (Kosovo) Survey data (Kosovo) 14 Government of Kosovo. 2016. Health Sector Strategy 2017-2021. https://msh.rks-gov.net/Documents/ DownloadDocument?fileName=Strategjia%20Sektoriale%20e%20Sh%C3%ABndet%C3%ABsis%C3%AB%20 (2017%20%E2%80%93%202021)54528803.4504.pdf 15 Government of Kosovo. 2021. Government program 2021-2025. https://masht.rks-gov.net/wp-content/ uploads/2022/06/Programi-i-Qeverise-se-Kosoves-2021-2025.pdf 16 Government of Kosovo. 2022. National Development Strategy 2030. https://kryeministri.rks-gov.net/en/ national-development-strategy-2030/ 15 20. The low total spending is driven largely by government health expenditure that accounts for between 60–65 percent of THE. Government spending on health fluctuated around 3 percent of GDP during 2015–2019. This is the lowest value among comparator countries, with the exception of Albania (Table 1). Health spending increased to nearly 4 percent of GDP in 2020, when extra resources were made available to the health sector for COVID-19-related activities. However, this declined to 3.5 percent of GDP in 2021.17 Comparable data are not available for peer countries, although all countries experienced a rise in health spending during the peak year of COVID-19. A record high budget of EUR 296 million was adopted by the Parliament for 2023, which foresees a significantly larger envelope for health personnel in anticipation of the effectiveness of the revised wage law. Low government spending on health as a share of GDP is a combination of overall lower revenue mobilization and lower prioritization of health within government expenditures. In 2019, Kosovo spent 10.6 percent of general expenditures on health, lower than the median of 12.05 percent and average of 11.45 percent among peer countries (Figure 4). Table 1. Government health expenditure, % GDP 2015 2016 2017 2018 2019 Bulgaria 4.16 4.14 4.17 4.34 N/A Croatia 5.61 5.64 5.60 5.66 6.40 Latvia 3.33 3.47 3.44 3.72 4.20 Lithuania 4.36 4.42 4.28 4.40 5.10 Romania 3.86 3.91 4.05 4.43 N/A Bosnia and Herzegovina 6.62 6.55 6.30 6.24 6.20 Albania N/A N/A N/A 3.0 N/A Kosovo 3.10 2.95 2.88 3.05 3.2 Source: Eurostat and World Bank (Kosovo). Fig 4. Government health expenditures as percent of total government expenditures in 2019 Bosnia and Herzegovina 15.4 Slovenia 14.2 North Macedonia 13.6 Lithuania 13.2 Estonia 12.9 Croatia 12.1 Moldova 12.1 Serbia 12 Montenegro 11.3 Kosovo 10.6 Latvia 10.4 Albania (2018) 9.8 Kyrgyz Republic 7.1 Armenia 5.7 0 2 4 6 8 10 12 14 16 18 Source: World Bank and Kosovo Ministry of Finance 17 Authors’ calculation using data from Kosovo Statistics Office (https://askdata.rks-gov.net/). 16 21. Private health expenditure has been increasing in nominal terms, from EUR 116.4 million in 2015 to EUR 135 million in 2019 (Table 2). About 84–88 percent of private health expenditure was estimated to come from OOP payments, incurred by households for medicines or at the point of service in both the public and private sectors. The OOP payments were estimated based on the Household Budget Surveys (HBSs) of 2014 and 2017, assuming the same rate of increase between 2017 and 2019 and between 2014 and 2017. A second source of private health expenditure comes from private health insurance, which covers diagnostics and treatment in the private sector. Revenue from private insurance increased from EUR 13.4 million in 2015 to EUR 19.6 million in 2019. Between 2015 and 2019, OOP payments were estimated to have increased by 12 percent in nominal terms, with the corresponding rate of increase for private health insurance amounting to 46 percent, further underscoring the adverse impact of the missed implementation of rolling out SHI.18 Table 2. Estimates of private health expenditure in million EUR (current value)   2015 2016 2017 2018 2019 Total private exp (million EUR) 116.4 122.3 126.0 130.3 135.1 Of which:           OOP payments 103.0 106.0 109.0 112.3 115.5 Private health insurance 13.4 16.3 17.0 18.0 19.6 OOP as share of private exp (%) 88 87 87 86 85 Rate of increase 2015-2019           OOP payments (%) 12 Private health insurance 46 Private exp as % of THE 41 41 41 39 38 OOP exp as % of THE 36 36 36 34 32 Source: Vončina (2021) 22. In 2020 and 2021, due to the COVID pandemic, health expenditures were 23 and 33 percent higher, respectively, than in 2019. In 2020, expenditures through the MoH nearly doubled, and they rose further in 2021. There was a smaller increase in expenditures through KHUCS and the HIF in 2021 (Figure 5). The increase in health expenditures through MoH and KHUCS was driven by spending on goods and services (Figure 6), which more than doubled the level of MoH, increasing from 10.2 million euros in 2019 to EUR 27.1 million in 2020, and more than tripled to EUR 34.2 million by end-2021. At the KHUCS, spending on goods and services rose from EUR 41 million in 2019 to EUR 52.8 million in 2020. Municipalities increased their spending on goods and services in PHC from EUR 7.9 million in 2019 to EUR 22.4 million in 2020, followed by a steep drop to EUR12.9 million in 2021. The MoH made substantial capital investments during this period: non-financial asset spending increased from EUR 6.4 million in 2019 to EUR 14.2 million in 2020 and EUR 12.0 million in 2021 (Figure 6). A large share of municipalities’ PHC spending goes to wages and allowances by design since the PHC grant formula is primarily intended to pay for these. The total budget for PHCs also includes expenditure on essential medicines and capital investments. 18 Vončina, Luka. 2021. Kosovo Health Insurance Fund Financing Plan 2022-2026. Technical Note. 17 Fig 5. Health expenditures by budget organizations (EUR million) 300 M Ministry of Health KHUCS 250 M Municipalities (PHC) HIF 200 M 150 M 100 M 50 M M 2015 2016 2017 2018 2019 2020 2021 Source: National Health Accounts Report, 2021 Fig 6. Health expenditures by budget Wages and Allowances Goods and Services Utilities organizations and economic Subsidies and Transfers Non-financial assets categories (EUR million) MoH KHUCS Municipalities 70 M 160 M 90 M 60 M 140 M 80 M 120 M 70 M 50 M 100 M 60 M 40 M 50 M 80 M 30 M 40 M 60 M 30 M 20 M 40 M 20 M 10 M 20 M 10 M M M M 2015 2016 2018 2019 2020 2021 2015 2016 2018 2019 2020 2021 2015 2016 2018 2019 2020 2021 2017 2017 2017 Source: National Health Accounts Report, 2021 2.3.  Risk pooling 23. Although public services are envisaged in Kosovo to be free or subject to small user fees, in practice services and drugs are usually not available. As a result, patients pay OOP at the point of service. Under such circumstances, sick people carry the burden of funding their treatment. This financial burden can be particularly severe for the poor, or for people with chronic conditions, who need medications on a regular basis. Currently, there is no mechanism to share financial risks between the sick and the healthy as well as between the poor and the better-off. Furthermore, there is no objective mechanism to identify the poor, especially considering informal income. With the planned collection of mandatory insurance contributions, continued financing from the general budget will remain crucial to provide subsidies for the population cohort lacking the capacity to pay premiums. 24. The limited size of the PHC grant and its rigid formula do not allow for risk sharing across municipalities with different socio-economic conditions and disease burden. The formula is not based on actual performance but rather on input norms which, in turn, reflect the population size documented in the 2011 Census, with a small top up for “ongoing programs.” The indicators for the ongoing programs in the Medium-Term Expenditure Framework 2023-2025 include the expected number of home visits for pregnant women and children and for palliative care, again reflecting norms rather than actual performance. Grant funds are inadequate to meet local health financing needs. 18 Specifically, in 2019, only eight out of 38 municipalities reported that the health grant was sufficient. Municipalities spent on average 13.5 percent more for PHC than the amount allocated in their health grant.19 This has potential equity implications because the smaller and poorer municipalities have limited fiscal space to top up PHC funding. In addition, census data does not consider differential migration patterns over the last 10 years, penalizing remote areas with more constrained mobility. 2.4.  Strategic purchasing 25. The health sector in Kosovo currently lacks the practice of strategic purchasing. Healthcare services are paid for with a predetermined budget defined annually based on rigid input line items such as salaries, goods and services, and utilities. There are no clearly stated decisions on the three key elements of strategic purchasing – benefit package, contracting, and provider payment. Other conditions for strategic purchasing are also not applied. Box 1. What is strategic purchasing? Purchasing becomes strategic or active when purchasers of health services deliberately select the goods and services to buy and the providers to buy from. Strategic purchasing arrangements create financial incentives for providers to contribute to health system objectives. They can help prioritize cost-effective health services (e.g. primary care over unnecessary hospitalization), incentivize prevention and health promotion, and reduce wasteful spending on unnecessary services. Appropriate arrangements can also be made to pay providers more to work in underserved areas or serve vulnerable populations, while reducing incentives to collect informal fees from patients. Payments can also be made contingent on meeting accreditation standards and following clinical treatment guidelines. The following steps are typically included in the development of strategic purchasing: 1. Establishment of an institution to pay for health services using a sufficient pool of funds – this is typically the Health Insurance Fund. 2. Creation of an institutional architecture for purchasing (licensing, certification, registration, accreditation, Health Technology Assessment, patient safety, etc.) and mechanisms for accountability. 3. Revision of the public financial management system to support strategic purchasing. 4. Granting of appropriate autonomy to providers over many spending decisions. 5. Development of IT infrastructure for the payer and providers to exchange data on health service delivery, patient outcomes, costs, etc. 6. The regulation of the relationship between the payer and providers via contracts, defining the obligations of both parties, including performance targets and quality, and clear instructions for claims submission, processing, monitoring, and reporting. 7. Creation of output-based payment methods based on claims. 8. Definition of payment rates that reflect real costs and include risk adjusters for cost differences across geographic locations, levels of care, age, gender, and other dimensions. 9. Specification of lists of covered services (benefit package) and covered medicines (an essential medicines list or formulary). 10. Definition of standard treatment guidelines with standards for the quality of care and guidelines for referrals, including any gate-keeping policies. Source: Cashin, C, Nakhimovsky S, Laird K, Strizrep T, Cico A, Radakrishnan S, Lauer A, Connor C, O’Dougherty S, White J, Hammer K. September 2018. Strategic Health Purchasing Progress: A Framework for Policymakers and Practitioners. Bethesda, MD: Health Finance & Governance Project, Abt Associates Inc. 19 World Bank. 2020. “Policy Note on Financing Education and Health at the Local Level in Kosovo.” Kosovo Local Administration Policy Dialogue Platform, July 2020. 26. An explicitly defined service benefit package is nonexistent. The benefit package regulates the scope of services the population is entitled to when seeking care in the public sector, while services in the private sector are subject to full user fees. The Law on Health defines free entitlement to healthcare services and highlights the types of services each level of care should offer. However, the definition is too broad, and since services are not explicitly defined, it is not clear to what extent: (i) the population is aware of the free services as well as the services subject to user fees; and (ii) the benefits are guaranteed. In practice, staff shortages and the lack of equipment, medicines, and medical supplies often result in unavailability of health service. 27. The outpatient drug benefit is almost nonexistent. Although there is a list of essential medicines that MoH procures and distributes for PHC, the variety and quantity of drugs is limited. Field interviews conducted for this study revealed that the quantity of drugs provided by the MoH only meets one tenth of actual needs. Often, patients must return to the facilities for drugs because they are not available on the day of their consultation, or they go to private pharmacies to avoid waiting. It is reported that most drugs, except insulin, are paid for by patients. 28. Currently, subsidies are poorly targeted in Kosovo. A key element of any benefit package is the identification of population groups eligible to receive subsidies. Exemptions currently incorporate a combination of categorical and poverty means testing targeting. The result of this approach is seemingly excessive population of patients that are exempted from user fee payments. Specifically, an estimated 70–80 percent of patients are not obliged to pay user fees when seeking care in the public sector.20 At the same time, strict eligibility criteria for identifying the poor result in a significant gap in coverage – about 7 percent of the population benefits from social assistance, but the national poverty rate is close to 25 percent. When SHI is rolled out, the same group currently being exempted from user fees will likely be exempted from premium payments. Addressing the ineffectiveness in targeting of health subsidies will be crucial for the fairness and financial sustainability of insurance. 29. Contracting for services with public providers does not exist, and the type and volume of services to be expected from each provider is not stipulated. This limits the ability to ensure providers’ accountability. In principle, PHC providers should play a gatekeeping role and address most health issues at their level. In practice, it is reported that PHC facilities tend to refer patients out quite easily.21 Similarly, hospitals are free to determine the structure of hospitalizations – volumes of care and case mix – which risks limiting access for patients with serious and costly-to-treat conditions. Additionally, performance and quality indicators are not defined and hence not monitored. 30. For purchasing to be effective, health facilities need to have a certain degree of autonomy. In Kosovo, public facilities have little to no autonomy in budget spending due to the rigid line-item budget norms and their low resource envelope. At the PHC level, as much as 87 percent of all spending is used to pay fixed costs, most of which are salaries that are centrally managed, leaving little room for management decision on spending. Healthcare workers negotiate their agreements, with specific rights and financial rewards, in a collective bargaining process with the central government, even though their employer is the local government. With the management of PHC decentralized, these facilities are reported to be sometimes influenced by municipalities in staff selection decisions. At the hospital level, KHUCS decides the annual budget and planning on behalf of general hospitals. User fees collected by the general hospitals are not treated as additional funding for the hospitals but go back to KHUCS’ central budget. 31. The lack of contracting with private providers by the government represents a missed opportunity to expand access for the population and control quality of care in the private sector. Private health sector capacity has grown sharply in recent years. Between 2015 and 2020, the number of private institutions increased by 49 percent, from 1062 to 1582, with the largest increase experienced in outpatient specialist clinics.22 In 2019, private hospital beds accounted for 13 percent of all hospital beds in Kosovo. The rapid development of the private sector, both in financing through private insurance and in provision of services, has created a parallel market catering to the wealthy. If not managed well, this could threaten the success of the national risk pool when SHI is rolled out. 20 JICA. 2022. Data Collection Survey on Health Sector to Build Resilient Health Systems toward Universal Health Coverage in the Republic of Kosovo. Final Report. February 2022. 21 World Health Organization. 2019. Primary health care in Kosovo: rapid assessment. 22 Kosovo Agency of Statistics, 2022. 20 32. One of the preconditions for strategic purchasing is a well-functioning information system and Kosovo is still at an early stage in this regard. With the introduction of contracting and new provider payment methods, classifications of diagnoses and procedures will become of utmost importance. Health care providers currently do not produce data on diagnoses and procedures connected with patient visits. For diagnoses, the International Classification of Diseases, Tenth Revision (ICD-10), has been adopted by the Institute of Public Health, but is not widely used, and a procedure classification system has not been adopted. The main source of information is Health Statistics, managed by the Kosovo Agency of Statistics. The statistics are at the aggregate level and are not updated in real time. Furthermore, the quality of health statistics leaves much room for improvement, because even the most basic statistic – cause of death – is not available for some 20 percent of all registered deaths. Under the World Bank-financed Kosovo Health Project (KHP), the Health Insurance Fund’s Information System (HIFIS) and an electronic prescription application have been developed. However, HIFIS will not be operationalized until SHI becomes functional, whereas the e-prescription application is awaiting the rolling out of the Outpatient Drug Benefit Package. 33. While many countries have moved beyond line-item budgets and adopted more sophisticated provider payment methods for incentivizing quality and efficiency, line-item budgets remain the only method of payment for hospital care in Kosovo. All wages, drugs, and supplies are purchased through the government budget. For PHC, the health grant allocation to municipalities is capitation-based and relies on input norms, with only a small number of inputs being included in the formula. Neither the capitation formula nor the line-item budgeting for hospitals provide any incentives for improving efficiency or quality of care. Box 2. HIF reimbursement of treatment outside public health institutions Kosovo has an Administrative Instruction that allows patients to get treatment outside the public health institutions and be paid by the HIF under the MTOPHI program (Administrative Instruction No. 03/2017). This includes mainly treatment outside Kosovo but also in local private facilities in some instances. Since 2018-2019, the funds for treatment outside the public health institutions has been transferred to the HIF instead of MoH. The goal of this program is to provide financial support to citizens and residents of Kosovo for health services which cannot be provided in public health institutions. Patients have the right to apply for the program through the Division for MTOPHI, after completing the full documentation (including the reference from the Counselling Commission). Medical records, Report of the Counselling Commission composed of three doctors from KHUCS, and two proforma invoices should be submitted together with the administrative documents. Final decision is made by the MTOPHI. If approved, treatment is paid by the HIF. The HIF’s management of payment under MTOPHI is best characterized as passive purchasing or pure processing of payment. The process lacks proper and standardized procedures to specify the types of services the Counselling Commission can refer a patient for treatment outside public health institutions. In addition, the MTOPHI program makes decisions on a case-by-case basis without involving the HIF in any decision-making role nor in understanding the budget limitations. The HIF is currently serving only as a payment agent, instead of developing standardized approval and monitoring processes. It does not engage in any contract negotiation with hospitals abroad. This approach has generated significant financial risk for the MTOPHI funds: for example, in 2021, the Fund spent EUR1.4 million on MTOPHI more than the budgeted amount of EUR8 million. In addition, the Fund is facing contingent liability from commitment letters issued to foreign providers which has not yet materialized as debt. As of December 31 2022, the liability was reported to be more than EUR 26 million. 21 3.  Shortcomings in UHC goals associated with health financing arrangements Chapter 3. Shortcomings in UHC goals associated with health financing arrangements 22 34. The lack of significant reforms in health financing over the last decades represents a missed opportunity for Kosovo to address various shortcomings vis-à-vis UHC goals of achieving access, quality, efficiency, equity, and financial protection. In fact, as seen above, key financing functions are organized in a way that disincentivizes improvements. Some constraints are highlighted below, with a caveat that observed outcomes are multidimensional and financing alone only partly explains the outcomes. 3.1.  Insufficient public spending causes input constraints, poor access, and low quality of care 35. With only 3 percent of GDP devoted to health, Kosovo’s health system faces a number of significant challenges, including inadequate funds to pay health care personnel, maintain health facilities, or purchase sufficient medicines and medical supplies. Kosovo compares unfavorably with peers in terms of inputs into service delivery and actual utilization of public services. For inpatient care, in particular, with 2.3 beds per 1,000 population, Kosovo’s network of public hospitals has far fewer beds than all comparator countries (Figure 7). Similarly, the number of hospital doctors per 100,000 population is lowest among peers, except for Albania (Figure 8). The low number of beds does not necessarily mean that Kosovo needs more hospital beds, since the occupancy rate of the existing beds is also low, and care should be moved more towards PHC rather than hospitals. An additional limitation is that the data for Kosovo comes from an outdated census and pre-COVID statistics. Fig 7. Hospital beds per 1,000 Fig 8. Hospital physicians per population in 2018 or 100,000 population latest year available Lithuania 6.4 Lithuania 276 Moldova (2014) 5.7 Estonia 215 Serbia (2017) 5.6 Croatia 181 Croatia (2017) 5.5 Latvia 175 Latvia 5.5 Serbia 159 Estonia 4.6 Slovenia 145 Slovenia 4.4 Armenia 130 Kyrgyz Rep. (2014) 4.4 Montenegro 117 N. Macedonia (2017) 4.3 Moldova 104 Armenia (2015) 4.2 N. Macedonia 95 Montenegro (2017) 3.9 BiH (2014) 3.5 BiH (2012) 88 Albania (2013) 2.9 Kosovo (2019) 83 Kosovo 2.3 Albania 58 0 2 4 6 8 0 50 100 150 200 250 300 Source: WDI (peer countries) and authors’ Source: HFA, 2013 (peer countries) 2012 (BiH) and calculations based on KAS data (Kosovo) 2019 (Kosovo, authors’ calculations based on KAS data) 23 36. Service utilization is low for outpatient and inpatient care. Kosovo records fewer outpatient contacts per person than peers, except Albania and the Kyrgyz Republic (Figure 9). In 2019, the number of discharges per 100 population in Kosovo ranged from 38 percent of those recorded in Lithuania to 83 percent of those recorded in North Macedonia (Figure 10). Fig 9. Outpatient contacts per Fig 10. Hospital discharges per capita, 2019 or latest year 100 population in 2019 or available latest year available Lithuania (2014) 8.7 Lithuania (2014) 24.08 Serbia (2014) 7.8 Latvia (2014) 18.59 Montenegro (2014) 7.1 Slovenia (2014) 18.37 N. Macedonia (2013) 7.0 Estonia (2014) 17.51 Slovenia (2014) 6.6 Croatia (2014) 17.45 Moldova 6.4 Moldova 17.35 Estonia (2014) 6.3 Armenia 14.67 Croatia (2014) 6.3 BiH 14.58 Latvia (2014) 5.9 Kyrgyz Republic 13.75 BiH 5.2 Serbia 13.47 Armenia 4.1 Kosovo 3.0 N. Macedonia (2013) 11.21 Kyrgyz Republic 2.5 Kosovo 9.27 Albania (2013) 2.5 Albania (2013) 8.62 0 2 4 6 8 10 0 5 10 15 20 25 30 Source: HFA (peer countries) and authors’ Source: HFA (peer countries) and authors’ calculations based on KAS data (Kosovo) calculations based on KAS data (Kosovo) 37. Despite PHC being free and geographically accessible, citizens point to poor quality of care as an important reason for low use of services. In fact, over 33 percent of respondents in the 2017 HBS cited unavailability of drugs as their reason for dissatisfaction with public health institutions (Figure 11). Primary care capacity in terms of team composition, competencies and available equipment does not match the health needs and expectations of the population, which leads to decline in reputation and, therefore, bypassing of PHC services.23 23 World Health Organization. 2019. Primary health care in Kosovo: rapid assessment. 24 Fig 11. Reasons for dissatisfaction with visit to public health institution (%), 2017 No drugs available 33.4 Other quality of care concerns 20.9 Long waiting hours 13.9 Other services not available 9 No diagnostic/lab facilities 8.8 No specialists 7.6 Too expensive 4.1 Poor knowledge of treating doctor/nurse 1.7 Other 0.6 Source: WB staff calculation using 2017 HBS 38. The quality of hospital services is challenged by a host of constraints, most notably lack of qualified staff and equipment. This has resulted in a long waiting list and the need to refer patients to private practice or abroad due to the public hospitals’ inability to provide certain services. In January and February of 2022 alone, 7,645 patients were reported to be waiting for any type of surgical, diagnostic, or other hospital treatment in the UCCK in Pristina.24 This represents close to 10 percent relative to the total discharges from UCCK in 2019. Most patients were waiting for radiology, vascular surgery, and ophthalmology services. The most common reasons for patients to be on waiting list included lack of staff and lack of equipment (Figure 12). Fig 12. Reasons for being on the waiting list, in number of patients 8000 7337 7000 6000 5380 4973 5000 4000 3697 3000 2227 1904 2000 1000 443 0 Lack of Lack of Lack of human Lack of physical Lack of Lack of Others* staff equipment expertise space supplies operating days (operating room) Source: MoH Rapid Hospital Service Assessment Survey (2022) 24 Ministry of Health (Kosovo). 2022. Results of the Rapid Hospital Service Assessment Survey. March 2022. 25 3.2.  Absence of strategic purchasing contributes to inefficiency 39. Incentives to improve performance are missing. Without the active role of a strategic purchaser and a proper contracting mechanism, providers do not face any pressure to improve performance. Although data availability is limited, inefficiency is further evidenced by the weak role of PHC and the suboptimal use of hospital resources. 40. Costly hospital resources are used for outpatient care and for treating many conditions that should be addressed by PHC. Hospital admission rates for hypertension and diabetes – conditions which should be treated in PHC with no hospitalizations – far outstrip those recorded in OECD countries. This indicates that many hospitalizations may be unnecessary. In 2016, hospitalization numbers per 100,000 inhabitants were to 776 for hypertension and 396 for diabetes, compared to the OECD averages in 2015 of 131 and 174, respectively.25 In 2019, 27 percent of all outpatient visits took place in the hospitals, and 40 percent of all hospital outpatient visits occurred in UCCK – the only tertiary hospital in the country. 41. The bed occupancy rate in hospitals is low, particularly in general hospitals (Figure 13). During 2015–2019, the average bed occupancy rate in general hospitals totaled 52–53 percent. Hence, half of the bed capacity is put to use, while hospitals still maintain the running cost for the whole structure, stretching further the limited resources for utilities, maintenance, equipment, and supplies. Fig 13. Bed occupancy rates of UCCK and general hospitals 80% 70% 60% 50% Occupancy rate UCC Occupancy rate General hospitals 40% 2015 2016 2017 2018 2019 Source: Author calculations based on KAS data 42. The issue of efficiency and appropriateness of health services provided is also evident in the high rate of cesarian sections (C-sections), which has risen from 28 percent in 2016 to 33 percent in 2020.26 There is no apparent explanation for this increase, especially as there are no explicit financial incentives to carry out C-sections. This is one of the most common surgeries in many countries around the world, a procedure that can save women’s and babies’ lives when complications occur during pregnancy or birth. However, C-section use for non-medically indicated reasons is a cause for concern because the procedure is associated with considerable short-term and long-term effects and healthcare costs. C-section use has increased over the past 30 years in excess of the 10–15 percent of births, a level generally considered optimal.27 25 WHO EURO. 2018. Primary care rapid assessment. https://apps.who.int/iris/handle/10665/346480. 26 Kosovo Agency for Statistics, 2022. 27 https://www.thelancet.com/series/caesarean-section. 26 3.3.  Lack of effective pooling and a guaranteed benefit package necessitates high OOP payments and imposes financial risk on the population 43. With 32–35 percent of THE being borne by households through OOP payments, Kosovo is at a significantly higher level than 20 percent, generally accepted as reasonable for financial protection. A majority of OOP payments is spent on pharmaceutical products, ranging between 70 percent in 2015 and 57 percent in 2017, the latest year for which data are available (Figure 14). Most notably, in 2017, 15 percent of household health expenditure was incurred in public health institutions, despite the very low level of user fees. Nearly one fourth (24 percent) of OOP expenditures was incurred in the private sector. Fig 14. Composition of household OOP spending on health (%) 70.1% 2015 2017 57.0% 24.1% 20.0% 15.2% 4.4% 5.2% 1.4% 0.4% 2.2% Pharmaceuticals Public Health Private Health Health Services Other Services Services Abroad Source: WB staff calculations using HBS 44. Out-of-pocket expenditures are exacerbating existing income inequalities. When considering OOP health payments, the poverty headcount increases from 15.5 percent to 17.1 percent and extreme poverty headcount increases from 4.6 percent to 5.4 percent (Table 3). In 2017, more than 11 percent of Kosovar households spent more than 15 percent of their nonfood consumption expenditure on health. Table 3. Measures of Poverty Based on Consumption Gross and Net of Spending on Health Care   Gross of health payments Net of health payments Poverty line = Total poverty line Poverty headcount 15.5% 17.1% Poverty line = Extreme poverty line Poverty headcount 4.6% 5.4% Source: World Bank staff calculations using 2017 HBS 27 4.  Advancing health financing reforms toward UHC goals - overall directions and next steps: policy recommendations Chapter 4. Advancing health financing reforms toward UHC goals -overall directions and next steps: policy recommendations 28 45. Kosovo is at a critical crossroad in terms of health financing. Pressures for long delayed health financing reforms are mounting and any major direction adopted now will have lasting impacts on the future of the health system. A clear and common long-term vision is needed for each of the key health financing functions – resource mobilization, pooling, and strategic purchasing. Based on these choices, a concrete roadmap with milestones for short- and medium- term measures needs to be developed. The technical and political complexities of health financing reforms, combined with limited implementation capacity, and lack of multiple preconditions as outlined above, dictates that the roadmap starts with relatively simple steps to gradually develop the system before a full-blown roll out of reforms in all health financing functions. 46. This section provides recommendations on general directions for strategic purchasing and pooling functions, the setup of which has strong implications for value for money of public financing. In addition, key considerations are elaborated to inform government’s decision in moving forward with resource mobilization reforms. Finally, some concrete measures that could serve as priority actions in the next 3-5 years are described in detail below. 4.1.  Introducing strategic purchasing and provider-payer split 47. Strategic purchasing and provider-payer split can be implemented independent of premium collection for SHI. With the establishment of the HIF, Kosovo has practically introduced a purchaser, although it has not been performing strategic purchasing. For the HIF to truly play such a role, the following essential elements need to be in place. 48. Being the strategic purchaser of health services, the HIF will contract directly with public and private providers at all levels of care through purchasing arrangements. The contracting should be based on pre-determined criteria to realize value for money, accountability, and equity among others. For PHC, the current grant formula does not incentivize quality improvement, relies on the 2011 census, and does not meet PHC needs. It could be replaced with a risk-adjusted capitation method, whereby age, sex, and population density can be used as risk adjusters. To mitigate risks related to capitation, certain performance indicators should be developed. Capitation payment can also be blended with fee-for-service to incentivize targeted priority services, such as preventive care, screening, and management of NCDs. For hospitals, in the transition phase, global budgets and case-based payment for prioritized services could be introduced. In the long term, introduction of prospective payment mechanisms such as diagnosis- related groups (DRGs) in combination with quality performance measures should be considered. It is important to note that while the use of DRGs can improve efficiency, it cannot in itself solve all issues in the system and should be part of a systematic approach to reform. 29 Box 3. Examples of the introduction of strategic purchasing: Croatia and Germany The introduction of strategic purchasing is usually gradual, and the pace of introduction varies by country. In Croatia, for example, hospital financing reform occurred incrementally, with each step building on the previous one: • 1996: Global budget • 1998: Capped fee-for-service (FFS) • 2002: Capped FFS + case-based payment • 2009: DRG-based payment • 2015: DRG-based payment + pay-for-performance The Croatian Health Insurance Fund (HZZO) began first with transition from line-item budgets to global budgets and then to capped FFS. This is a global budget with FFS invoicing up to a ceiling or cap. The purchaser then transitioned to DRGs incrementally, beginning with pilot testing before scaling up DRGs nationally. Eventually, Key Performance Indicators and Quality Indicators were added to the payment model. The main goals behind hospital payment reforms were cost reduction and rationalization of resources, as well as improvement of certain performance indicators such as shortening average length of stay thereby achieving higher patient turnover and reduced waiting times for certain procedures. One of the greatest challenges to the reform was costing of services although HZZO introduced patient-level electronic invoicing in 1999. A second major challenge was related to the incentives that DRG payment systems create for providers to upcode, in order to be reimbursed at a higher rate. To monitor possible upcoding and other gaming, the HZZO used fraud detection software. The algorithm automatically detects anomalies to help target suspicious claims that need to be verified with chart audits. In Germany, introduction of the DRG-based payment system was gradual with a stepwise withdrawal of the former mixed payment system. It can be divided in four phases. In the preparation phase (2000-2002) a cost-accounting system to calculate cost weights was developed and cost weights were calculated from a sample of voluntary participating hospitals (around 100 in 2002). The first version of the G-DRGs (German – DRGs) system had 664 DRGs. During this phase, the WHO’s International Classification of Procedures in Medicine was converted into the German Operations and Procedures Codification Index and the ICD codes into the ICD-10-German Modification (ICD-10-GM). The phases of development were: • 1996: Per diem charges + case and procedure fees. • 2000-2003: Preparation phase for the G-DRG introduction. • 2003-2004: Budget neutral phase of the G-DRG implementation. • 2005-2009: Convergence to the state-wide base rate. • 2010 to date: Convergence from the state-wide base rate to a nation-wide base rate. 30 Box 3. Examples of the introduction of strategic purchasing: Croatia and Germany Since 2005, the contracting parties have been authorized to negotiate additional reimbursement by means of case-based or per diem remuneration for highly specialized services, and supplementary fees for expensive drugs, medical devices and procedures. There is additional payment for certain day cases of curative care – for geriatric care and renal insufficiency – and grants/budgets for teaching activities, emergency services, accommodation costs of accompanying persons, securing the necessary provision of services, or excessively limited demands for care, care for foreign patients, activities related to quality improvement, and integrated care contracts. The risks of early discharge to cut costs have been one of the biggest challenges. The introduction of DRGs has stimulated substantial investments in information technologies and controlling activities. Hospitals have gained more transparency on the range and prices of their services, which likely affected their output and increased their technical efficiency. An independent company owned by the insurance industry and the German hospitals association called Institute for the Hospital Remuneration System (Institut für das Entgeltsystem im Krankenhaus – InEK) oversees the hospital remuneration system in Germany. It has responsibility for the whole process involved in setting prices, coding rules and licenses the rules for the grouping software that assigns cases to DRGs based on codes. Source: Bredenkamp, Caryn, Sarah Bales, and Kristiina Kahur (eds.). 2020. Transition to Diagnosis-Related Group (DRG) Payments for Health: Lessons from Case Studies. Washington, DC: World Bank. doi:10.1596/978-1-4648- 1521-8. 49. A list of services covering PHC, emergency, outpatient specialized care, and hospitalization – in the public and private sectors – will need to be developed and properly costed. The design of the benefit package should include disease burden, cost effectiveness, and priorities given to certain marginalized population groups. Although there are well-established methodologies for defining and revising a benefit package, this is a complex process for which capacity needs to be developed. As a start, Kosovo could consult the benefit packages from similar health systems. Some simple tools for the benefit package design are also available from international sources, such as the Choosing Interventions that are Cost-Effective (CHOICE) developed by the WHO,28 and the Disease Control Priorities 3rd edition (DCP3) program developed by the World Bank and partners.29 The definition of the benefit package needs to be done in conjunction with a proper costing exercise. Not only the cost of providing services needs to be estimated, but actuarial costing is also required to consider the price elasticity of demand in the scenario where the package will be offered to the population with no or very low copayment. 50. Deploying new payment methods will bring new challenges. For example, misuse and fraud could be exacerbated under the DRGs system, as described above for Croatia and Germany. To limit misuse and fraud to the lowest possible level, a software module for fraud detection needs to be developed and integrated with the electronic invoice system, as all data will be stored in that system. This system aims to find intentional and accidental errors in provider reporting and invoicing. An algorithm automatically finds anomalies and records invoices that need to be further checked. In addition, the development of a Business Intelligence module will provide timely and in-depth analytics to inform the decision-making of the strategic purchaser. 28 http://www.who.int/choice/en. 29 http://dcp-3.org. 31 4.2.  Introducing a targeting mechanism for exemption in social programs to ensure fairness and fiscal sustainability 51. Implementing a new poverty-targeting instrument that considers observable income through a means test and informal/unobservable income through a proxy means test could improve poverty targeting, better reflect the high rates of informality in the Kosovo labour market, and serve as a foundation for targeting health insurance exemption of the poor. Such a poverty-targeting mechanism would improve effectiveness of social protection system, as well as targeting of exempted categories from health service co-payment and future insurance contributions. The new mechanism will require, inter alia, the definition of detailed operational procedures, capacity building of the Centres for Social Work, and the development and deployment of adequate software. This is critical for ensuring that the reform benefits the poor and vulnerable population. 4.3.  Instituting an effective national risk pool 52. Effective risk pooling allows for true sharing of health and financial risks among the rich and the poor, the sick and not sick, and across municipalities. An “effective mechanism” relies mostly on prepayment, delinking health status with payment at the point of services. With the small size of the population, it is recommended that risk is pooled at the national level. For starters, public financing for health should be consolidated to avoid fragmentation. Following the typical model in other countries, most of the funds (the “risk pool”) could be housed with the HIF, while the MoH would become a smaller financing agent. Budget funds going through the MoH would be used mostly for public health programs and major capital investments, which would not exclude the capital investment currently in the KHUCS and municipality budget. Funds going through the HIF would be for individual services, which the HIF would purchase in its new role as a strategic purchaser. With the HIF assuming the role of the national risk pool/single purchaser of individual health services, the flow of funds could look like Figure 15 below. Fig 15. Public funds flow mechanism in the “HIF as national risk pool/single purchaser” scenario Budget financing Ministry of Health Health Insurance Fund New provider payment methods Wages and Salaries IPH, public PHC PHC Admin cost for HIF centers services servants at MOH Contracting Fund for strategic Goods and services & transfers: purchasing of services Hospital Public Health Services, Trainings, Hospitals services in the public and Admin costs, licensing, etc. private sectors Capital Investments for primary, Fund for strategic purchasing of secondary, and tertiary healthcare services outside the country Pharmacies Outpatient drugs Source: Authors 32 This scenario only describes the revision of the flow of funds currently available to the health sector, with the goal of reducing fragmentation and increasing the purchasing power of the single purchaser. In this scenario, the only source of public funds be the budget because insurance premium collection has not started. 53. The biggest differences between the current flow of funds (Figure 1) and this model (Figure 15) is that, following international best practices, a single risk pool would be created by: • Eliminating the separate budget lines going from the budget to KHUCS and to municipalities. Instead, funding for hospitals and PHCs (for individual services) would be pooled at the central level and managed by the HIF. This would allow the HIF to adjust spending to hospital versus PHC services flexibly. It would also allow the HIF to perform strategic purchasing, using contracting and performance management mechanisms to hold providers accountable for service provision – a task for which the Treasury is ill-equipped. • Enabling a national level pooling for PHC instead of the current municipal level risk pooling, because the HIF will contract with all PHC facilities on similar terms, with adjustments as needed to account for socio-economic conditions and disease profile of the location. 4.4.  Considerations for mobilizing additional resources for health 54. The low health spending in Kosovo suggests a scope to mobilize additional sources for health. While general taxation should remain the main source of core financing for health, fiscal space for health can be increased through different channels – some of which are more applicable to Kosovo than others – by improving general macro-fiscal conditions, prioritizing health vis-à-vis spending on other sectors, obtaining more foreign assistance or donations from diaspora, tapping into “innovative health taxes” such as taxes on the consumption of unhealthy items or on pollution, raising health sector specific revenue such as health insurance premium contributions, and improving efficiency to expand the sources available for health within the same spending envelope.30 Recent work on fiscal space for health in Kosovo suggests that other than properly implementing SHI and collecting premiums as specified in the draft HIL, economic growth will be the main source of fiscal space in Kosovo. This is in line with findings in other middle-income countries, where the scope to raise more revenue and to reprioritize health is more limited than in many low-income countries. 55. Increasing excise taxes on the consumption of alcohol, tobacco, and potentially sugar- sweetened beverages, earmarked or non-earmarked for health, can be an attractive option due to their potential positive impact on population health. For example, increasing excise taxes on cigarettes to the EU benchmark level could generate EUR 74-91 million over the 2026-2033 period while also reducing smoking prevalence by 3.1 percentage points (8.6 percent) from 36.4 to 33.3 percent.31 Increasing excise taxes on alcohol and potentially sugar-sweetened beverages also has significant revenue potential. 56. There are important considerations in increasing taxes on tobacco in Kosovo. On the practical level, this can lead to an increase in contraband tobacco imports. Vladisavljevic et al. (2022)32 find that 20.4 percent of current smokers in Western Balkans countries evade taxes on tobacco products, though this share is higher for hand-rolled tobacco (86.7 percent) and lower for manufactured cigarettes (8.6 percent). Kosovo is at the lower end in terms of current evasion (4.2 percent). Furthermore, although good data on the distribution of smoking across income groups is not available for Kosovo, analyses from other countries suggest that lower-income groups may experience the largest health improvements but also might pay for the tax disproportionately. 57. The prospect of raising additional funds through health insurance premium depends on a number of aspects and warrants careful considerations. Before Kosovo embarks on mandating contributions as currently described in the HIL, it is important to obtain clarity on the following issues: 30 Tandon, A., Cashin, C. 2010. “Assessing public expenditure on health from a fiscal space perspective.” World Bank Health, Nutrition and Population Discussion Paper. 31 Authors’ calculation. 32 Vladisavljevic M, Zubović J, Jovanovic O, et al Tobacco tax evasion in Western Balkan countries: tax evasion prevalence and evasion determinants. Tobacco Control 2022;31:s80-s87. 33 • What could be the impact on labor market? The current HIL specifies the rate as 7 percent of gross salary for the formal sector, to be split between employer and employee, or 7 percent of taxable income for self-employed people who pay tax on real income – the two largest contributory groups. For the formal sector, the group for which enrollment enforcement is the most feasible, insurance contribution acts as additional payroll tax, effectively increasing the cost of formal employment which could, in turn, increase informality. The extent to which this will happen in Kosovo is unclear, although literature from other countries generally finds that the impact of higher taxes on formality could be small.33 • What should be the contribution rate? It is not known whether the 7 percent rate is sufficient to cover benefits because a benefit package has neither been defined nor costed. The first step in determining the contribution rate should be to develop and conduct actuarial costing of the benefit package. Based on the total cost, the funding gap that could be filled by premium collection would be identified. Considering that the purpose of collecting mandatory insurance contributions is to raise additional revenue for health, it is crucial that additionality is respected and to ensure that revenue from insurance will not crowd out spending on health from the general budget. • What is the practical feasibility of raising substantial revenue through insurance contributions? As is the case with other countries, mandatory contributions are best enforced within the formal sector, but Kosovo’s economy remains highly informal. Although there are no official statistics, the share of the informal sector in the overall workforce is estimated to range from over a quarter to over 40 percent.34 Furthermore, evasion is expected to be high.35 According to a World Bank study, the rate of noncompliance in personal income tax was estimated at 33 percent in a 2018 study. The ability to enforce premium contribution in the informal sector also largely depends on willingness of the population to pay for health insurance, which will be impacted by the expected benefits derived from having insurance. An online survey of 1,068 citizens revealed that only 25 percent of the respondents were willing to pay at least 3.5 percent of their monthly salary to insurance, and nobody was willing to pay 7 percent—the true cost of insurance.36 It should be noted that the survey sample may be skewed toward the more educated who have access to an online platform, hence the willingness to pay among the general population may even be smaller. • How will the potential equity risk of premium contributions be mitigated? Unlike income tax, which puts higher income people in a higher tax bracket, the current flat rate of 7 percent payroll contribution imposes a higher burden on people with low salaries. Furthermore, the practical challenges in enforcing premium contributions among the self-employed and the large size of the non-contributory group mean that one segment of the population (the formal sector) will end up bearing the bulk of the tax burden associated with insurance. Some countries address this issue by shifting more to taxes on consumption and wealth rather than on wage-based income alone. For example, France has widened the revenue base for SHI to include earmarked income tax levied on all sources of income and not just payroll, taxes on tobacco and alcohol, the pharmaceutical industry, and voluntary health insurance. The shift to a broader definition of taxable income aims to address inequities in revenue generation as richer individuals tend to have higher wealth-related income.37 33 Rocha et al. (2018) find that in Brazil a decrease in taxes on formalizing firms only had a very small and transitory positive impact on formalization. The estimated low formalization elasticity meant that the government lost tax revenues on encouraging formalization by lowering taxes. Bíró et al. (2022) find that in Hungary increased enforcement in the formal sector led to 10.5% of workers likely receiving envelope wages (semi-formal workers) doubling their reported earnings while only 2% of these semi-informal workers left formal employment. The overall fiscal effects were positive. Ulyssea (2020) is a recent review of the evidence on the causes and consequences of informality in developing countries. Their summary of the evidence suggests that the impact of taxation on formalization is relatively muted. 34 Alexandru Cojocaru. 2017. Kosovo Jobs Diagnostic. Washington, DC: World Bank. 35 World Bank. 2008. Kosovo: Health Financing Reform Study. Report No. 43183-XK. The World Bank. 36 Jaha, Jona. 2019. “Universal Healthcare Coverage and the Future of Healthcare in Kosovo.” Thesis. Rochester Institute ofTechnology. Accessed from https://scholarworks.rit.edu/theses/10219. 37 Commonwealth Fund 2020, cited in Tandon, Kurowski, and Evans (2022). 34 • How will those who do not contribute to SHI be covered? Moving from the current system that finances health from general government revenues to one that raises SHI premiums could entail moving away from universality of entitlements to entitlements based on contributions. Therefore, a key question is how individuals who do not contribute to SHI would access health services. The HIL specifically exempts from contributions individuals who are poor according to the official poverty test; it also allows for the possibility of other exemptions. Nevertheless, it is possible that some individuals who are not exempted from the payment of contributions would fail to pay, in which case arrangements need to be made for their being able to access services, possibly after the payment of contributions or the costs of care. • Evidence from global experience shows that mobilizing contributions from payroll taxes alone will not bring countries closer to UHC. Invariably, segments of the population will need to be subsidized from general revenues. Furthermore, as countries experience the changing nature of the workforce, with increased self-employment and increased dependency ratio due to ageing population, the share of insurance funds that are financed from employment taxes is expected to decrease. Hungary, for example, has moved to enhance the sustainability of health financing in light of aging by relying more on transfers from general taxation for its SHI system.38 Montenegro has gone as far as abandoning mandatory contributions from payroll altogether. 4.5.  Concrete short- and medium-term measures to develop capacity for strategic purchasing and risk pooling 58. Achieving the vision outlined above requires significant steps, including adopting legislations to enable the change in the fund flow mechanism in the health sector. These also entail changes in the roles and relationships among key stakeholders. For example, the MoH will no longer be directly involved in purchasing drugs and services, but will set rules and standards. Individual hospitals will have the status that allows them to contract directly with HIF and holds them accountable for their performance rather than being dependent on KHUCS; they will also have more autonomy in deciding their own staffing. Municipalities will not manage the PHC centers in their jurisdiction and will not receive the grant for PHC from the Treasury; rather PHC centers will be contracted directly by the HIF, and health personnel must be able to receive additional payment for their good performance rather than the standard wage. It is clear that such reforms present major political risks and technical challenges. If not handled well, the acceptance of reforms will be at risk. For these reasons, it is important to take careful preparatory steps that are suitable to Kosovo’s capacity before embarking on a full-blown rollout of premium collection and before channeling most of public funds through the HIF. 59. It is recommended that health financing reforms be implemented in phases, with the first phase focusing on relatively simple steps to familiarize the system with the practice of strategic purchasing and pooling. The first phase will build on activities that have been supported by the World Bank and other international partners. By focusing on concrete measures that have a relatively good chance of success, the proposed phasing will make the benefits of the reform more apparent to end users and increase buy-in prior to implementing premium collection. Over the next 3-5 years, activities could include: • Piloting the management of the Outpatient Drug Benefit Package (ODBP) by the HIF. • Introduction of contracting and case-based payment for treatment outside the public sector. • Gradually expanding performance-based capitation payment building on the experience of the KHP. 38 Szigeti et al (2019), cited in Tandon, Kurowski, and Evans (2022). 35 Piloting the management of the Outpatient Drug Benefit Package (ODBP) by the HIF 60. Currently, outpatient drugs are procured by the MoH, stored in the central warehouse, and distributed to PHC through a public supply chain system. The distribution channel managed by the MoH stops at the MFMCs, and it is the responsibility of the MFMCs to ensure that drugs are available in smaller health centers and health posts within their network. The drugs are included in the Essential List of Medicines (ELM), but there are several drawbacks in the current system. First, in many municipalities, some medicines such as insulins are currently dispensed only at the MFMCs, which is a problem for patients living in rural areas, who have to come to the MFMC to get drugs. Due to shortages, sometimes facilities do not have medicines in stock, so patients have to return to obtain them. Although private pharmacies have a wide network, they are not contracted to distribute outpatient drugs financed from the government budget. Second, the ELM is outdated and the process of updating it is not based on good practice. Third, there is no mechanism to assess population needs, which would then inform policies such as the ELM. The stock request is mostly based on historical experience. 61. The ODBP pilot will introduce a new way of dispensing medicines by having the HIF contract with private pharmacies in addition to public pharmacies of the FMCs. Some advantages of the new (pilot) system include: the drugs will be easily accessible for most of the population because the private pharmacy network is well-developed around the country; the cost to maintain the central warehouse and public supply chain system will be reduced and eventually be removed; and the needs of the population will be better met. Implementing the pilot will help HIF to develop the capacity to fully implement e-prescription, manage contract with pharmacies, perform centralized procurement and framework procurement, exercise price control of pharmaceutical products and doctors’ prescribing behaviors, and work with the MoH to develop an evidence-based benefit package starting with medicines – all key functions that a typical health insurance fund in peer countries are performing. 62. The ODBP pilot should be implemented in parallel with the start of the long overdue measures to control pharmaceutical pricing. Prices of medicines in Kosovo are currently unregulated, and a reform that would set maximum allowed prices through international price comparisons, widen the scope of publicly financed outpatient drugs, and improve their procurement and distribution has been delayed on several occasions. This reform foresees setting maximum allowed prices of all prescription medicines, regardless of whether they are paid for by the state or by benchmarking prices in North Macedonia, Albania, Montenegro, and Croatia. A law on pricing of medicinal products was developed but has not been approved. 63. Some important preconditions for piloting and rolling out the ODBP are already in place, largely supported by the KHP. The drug package itself has been developed as well as two software modules – the e-prescription system housed in the MoH, and the claims management system housed in the HIF. These two systems still do not exchange information so it would be necessary to develop an application programming interface to establish communication with each other and a similar interface for communication with the software used by public and private pharmacies. 36 Introduction of contracting and case-based payment for treatment outside the public sector 64. To make treatment abroad financially sustainable, it is recommended that the HIF engages in a contractual relationship with providers and develops a simple case-based payment model as a form of payment. Case-based payment is a popular method to control hospital inpatient expenditures across countries. It can be based on a single flat rate per case or in a more complex form – DRGs. Currently, HIF reimbursement for leukemia, the most common condition for treatment abroad, is subject to a wide range – between EUR 90,000 and EUR 900,000. In a case-based payment model, the cost (price) of the treatment of leukemia would be predefined. This price would be offered to healthcare providers abroad that would then be contracted by the HIF for a certain volume of services (patients). Through this activity, the HIF would also build its capacity for managing hospital contracts and introducing a full-fledged DRG payment system for Kosovo’s hospital services in the future. Gradually expanding performance-based capitation payment building on the experience of the KHP 65. Under the KHP, MFMCs received additional transfers from the budget to finance quality improvement activities in the municipalities. The transfer was defined as “performance-based,” meaning that a fixed and small amount was awarded for each patient registered using a simple information system, practically incentivizing facilities to use the patient registration application developed for PHC. In this system, the MoH signed a memorandum of understanding (MOU) with each municipality, specifying expectations and eligible use of funds. Additional funding was viewed by the municipalities as instrumental for improving quality of care and responding to the emergency COVID-19 situation. However, there was no rigorous mechanism to assess the effects of such funds on real performance and the performance-based payment ended with the closing of KHP. The ongoing capitation grant formula does not incentivize quality improvement, is based on old census data, and does not fulfil the PHC’s needs. 66. Building on this recent experience, Kosovo could reinstitute performance-based capitation payment with certain modifications to develop a system for capitation payment that aligns with international best practice. Specifically: • “Performance” will be defined in terms of actual service delivery, such as population screening, home visit, and preventive health checkup. In the beginning, it is important to select simple indicators that are easy to capture and verify. Modification of the information system may be needed to capture such indicators. • The MFMCs will sign a contract with the HIF instead of an MOU with the MoH, practically making HIF the purchaser of these services. • In addition to performance-based payment, the capitation amount should also adjust for some basic demographic information of the catchment population, such as age and sex • Initially, the funds will be small and independent of the current PHC grant to avoid risks to providers. Such funds could come from the annual adjustment set by the MoF. Gradually, a larger portion of PHC funding could be channeled through the HIF until the Fund is capable of handling full payment for PHC, and legislation will change accordingly to allow for the modification of PHC fund flow. 37 References Annual Financial Report on the Budget of the Republic of Kosovo (2017, 2018, 2019, 2020, 2021). Bíró, Anikó, Dániel Prinz, ad László Sándor. 2022. “The minimum wage, informal pay, and tax enforcement.” Journal of Public Economics 215: 104728. https://doi.org/10.1016/j. jpubeco.2022.104728. Bredenkamp, Caryn, Sarah Bales, and Kristiina Kahur (eds.). 2020. Transition to Diagnosis-Related Group (DRG) Payments for Health: Lessons from Case Studies. Washington, DC: World Bank. https://elibrary.worldbank.org/doi/abs/10.1596/978- 1-4648-1521-8. Cashin, Cheryl, Sharon Nakhimovsky, Kelley Laird, Tihomir Strizrep, Altea Cico, Sharmini Radakrishnan, Ali Lauer, Catherine Connor, Sheila O’Dougherty, James White, and Katie Hammer. 2018. Strategic Health Purchasing Progress: A Framework for Policymakers and Practitioners. Bethesda, MD: Health Finance & Governance Project, Abt Associates Inc. https://www.hfgproject.org/strategic-health-purchasing-progress-a-framework- for-policymakers-and-practitioners/. Cashin, Cheryl, Susan Sparkes, and Danielle Bloom. 2017. “Earmarking for Health: From Theory to Practice.” Health Financing Working Paper No. 5. Geneva, Switzerland: World Health Organization. https://apps.who.int/iris/bitstream/hand le/10665/255004/9789241512206-eng.pdf. Cojocaru, Alexandru. 2017. Kosovo Jobs Diagnostic. Washington, DC: World Bank. http://hdl.handle.net/10986/27173. Disease Control Priorities (DCP3). http://dcp-3.org/. Glassman, Amanda, Ursula Giedion, and Peter C. Smith. 2017. What’s In, What’s Out: Designing Benefits for Universal Health Coverage. Washington, DC: Center for Global Development. https://www.cgdev.org/publication/whats-in-whats-out-designing- benefits-universal-health-coverage. Government of Kosovo. 2016. Health Sector Strategy 2017-2021. https://msh.rks- gov.net/Documents/DownloadDocument?fileName=Strategjia%20Sektoriale%20 e%20Sh%C3%ABndet%C3%ABsis%C3%AB%20(2017%20%E2%80%93%20 2021)54528803.4504.pdf _____. 2021. Government program 2021-2025. https://masht.rks-gov.net/wp-content/ uploads/2022/06/Programi-i-Qeverise-se-Kosoves-2021-2025.pdf _____. 2022. National Development Strategy 2030. https://kryeministri.rks-gov.net/en/ national-development-strategy-2030/ Jaha, Jona. 2019. “Universal Healthcare Coverage and the Future of Healthcare in Kosovo.” Undergraduate thesis. Rochester Institute of Technology. https://scholarworks.rit.edu/ theses/10219. Japan International Cooperation Agency (JICA). 2022. Data Collection Survey on Health Sector to Build Resilient Health Systems toward Universal Health Coverage in the Republic of Kosovo. Final Report, February 2022. https://openjicareport.jica.go.jp/ pdf/12369146.pdf. Jowett, Matthew, and Joseph Kutzin. ‎2015‎. “Raising revenues for health in support of UHC: strategic issues for policy makers.” Health Financing Policy Brief Nº 1. Geneva: World Health Organization. https://apps.who.int/iris/handle/10665/192280. 38 Kosovo Agency of Statistics. https://askdata.rks-gov.net/pxweb/sq/ASKdata/. Kutzin, Joseph. 2001. “A descriptive framework for country-level analysis of health care financing arrangements.” Health Policy 56 (3): 171-204. DOI:  10.1016/s0168- 8510(00)00149-4. Langenbrunner, John C., Cheryl S. Cashin, and Sheila O’Dougherty. 2009. Designing and Implementing Health Care Provider Payment Systems: How-To Manuals. Washington, DC: World Bank and USAID. https://doi.org/10.1596/978-0-8213-7815-1. Mathauer, I., Elina Dale, Matthew Jowett, and Joe Kutzin. 2019. “Purchasing of health services for universal health coverage: How to make it more strategic?” Health Financing Policy Brief No. 6. Geneva: World Health Organization. https://www.who.int/ publications/i/item/WHO-UCH-HGF-PolicyBrief-19.6. Ministry of Health (Kosovo). 2022. Results of the Rapid Hospital Service Assessment Survey. March 2022. Nakhimovsky, Sharon, Lauren Peterson, Jeanna Holtz, Catherine Connor, Sinit Mehtsun, Amanda Folsom, and Laurel Hatt. 2015. Using Evidence to Design Health Benefit Plans for Stronger Health Systems: Lessons from 25 Countries. The Health Finance and Governance Project (USAID). https://www.hfgproject.org/wp-content/uploads/2015/11/Using- Evidence-to-Design-Health-Benefit-Plans-For-Stronger-Health-Systems.pdf. Nguyen, Ha, Mrike Aliu, Luka Vončina, and Daniel Prinz. Forthcoming, 2023. “Kosovo Health System: An Assessment of Core Functions and Performance.” Washington, DC: World Bank. Rocha, Rudi, Gabriel Ulyssea, and Laísa Rachter 2008. “Do lower taxes reduce informality? Evidence from Brazil.” Journal of Development Economics 134: 28-49. https://doi. org/10.1016/j.jdeveco.2018.04.003. Szigeti, Szabolcs, Tamás Evetovits, Joseph Kutzin, and Péter Gaál. 2019. “Tax-funded social health insurance: an analysis of revenue sources, Hungary.” Bulletin of the World Health Organization 97(5): 335-348. Tandon, Ajay, and Cheryl Cashin. 2010. “Assessing Public Expenditure on Health from a Fiscal Space Perspective.” Health, Nutrition and Population (HNP) discussion paper. Washington, DC: World Bank. http://hdl.handle.net/10986/13613. Tandon, Ajay, Christoph Kurowski, and David B. Evans. 2022. “General Taxation and Social Health Insurance.” Washington, DC: World Bank. The Lancet. 2018. “Optimising caesarean section use.” https://www.thelancet.com/ series/caesarean-section. Ulyssea, G. 2020. “Informality: Causes and Consequences for Development.” Annual Review of Economics 12: 525-546. UNICEF. MICS 2022. Available from https://www.unicef.org/kosovoprogramme/ topics/multiple-indicator-cluster-survey (Accessed 25 April 2022) Vladisavljevic M, Jovan Zubović, Olivera Jovanovic, Mihajlo Djukic, Natasa Trajkova Najdovska, Ereza Pula, Dragan Gligorić, and Aida Gjika. 2022. “Tobacco tax evasion in Western Balkan countries: tax evasion prevalence and evasion determinants.” Tobacco Control 31 (Suppl 2): s80-s87. DOI: 10.1136/tobaccocontrol-2021-056879. Vončina, Luka. 2021. Kosovo Health Insurance Fund Financing Plan 2022-2026. Technical Note. 39 World Bank. 2008. Kosovo: Health Financing Reform Study. Report No. 43183-XK. Washington, DC: World Bank. http://hdl.handle.net/10986/8121. _____. 2019. Primary Health Care Quality Improvement Program. Program Appraisal Document. Report number: PAD3083. _____.2020. “Policy Note on Financing Education and Health at the Local Level in Kosovo.” Kosovo Local Administration Policy Dialogue Platform. July 2020. World Health Organization (WHO). 2003. Social Health Insurance. Report of a Regional Expert Group Meeting, New Delhi, India, 13-15 March 2003. New Delhi: WHO Regional Office for South-East Asia. https://apps.who.int/iris/handle/10665/206364. Accessed 22 April 2020. _____. 2017. Provider payment methods and strategic purchasing for UHC. UHC Technical brief. http://apps.who.int/iris/bitstream/handle/10665/258894/provider_payment_ methods_fr_uhc.pdf _____. 2019. Primary health care in Kosovo: rapid assessment. Copenhagen: WHO Regional Office for Europe. https://apps.who.int/iris/handle/10665/346480. _____. 2021. Choosing Interventions that are Cost-Effective (WHO-CHOICE). https:// www.who.int/news-room/feature-stories/detail/new-cost-effectiveness-updates- from-who-choice. 40 Annex: Global good practices in health financing Revenue generation Although countries differ in how they raise revenue for health, there is agreement on the following general directions that countries should adopt to promote financial protection and fairness. Public financing should be the main source of funding for health. Evidence exists that where public financing is weak and out-of-pocket (OOP) expenditure dominates revenue sources, a larger proportion of patients face catastrophic levels of health spending as a result of seeking treatment or do not seek care at all. Specifically, when public spending comprises less than 80 percent of total health spending there is a step increase in the number of households getting into serious financial difficulties.39 Various efforts exist to estimate the level of public spending required to move towards UHC, including US$ 86 per capita or at least 5 percent of GDP and at least 15 percent of total government spending (cite). For example, with the Abuja Declaration, African Union member states committed to allocating 15 percent of their government budgets to health. Out-of-pocket payments should not be the main source of revenue. Due to the high costs and uncertainty associated with certain illnesses, relying on OOP payments reduces financial protection and households’ ability to smooth consumption, lowering household welfare. These payments are typically regressive, imposing significant barriers to access for the poor. Furthermore, the reliance on OOP limits the ability of the purchaser to rely on monopsony power to hold prices down. It can also lead to delaying or foregoing necessary utilization. In some cases, it can also lead to an incentive for providers to oversupply care since it effectively means that services are provided on fee-for-service basis, but full insurance can also lead to moral hazard problems. Premium collection for social health insurance (SHI) can be an efficient and equitable way to raise funds and ensure fiscal sustainability. The premium collected typically stays within the health sector and typically adds to the government budget traditionally allocated for health. Insurance premium can be designed to reflect contributor’s income. Insurance promotes risk pooling across individuals, consumption smoothing around health events and over the lifecycle. It has the added advantage that it can protect healthcare funds from the general budget negotiation process. Innovative health financing mechanisms, such as health tax, have become popular in recent years as a means to mobilize additional domestic resources for health while improving public health objectives.40 Projections presented in a World Bank Group report for the G-20 meeting in Osaka, Japan, in 2019 showed that the substantial UHC financing gap in low- and lower-middle-income countries (now exacerbated by COVID-19), can be attenuated by excise tax increases on tobacco, alcohol, and sugar-sweetened beverages. These calculations showed that a 50 percent increase in prices for these products could generate additional revenues of approximately $24.7 billion in 54 low- and middle-income countries by 2030. Pollution taxes or charges can be applied on the production or consumption of a polluting activity. The most common examples of this approach are fuel duties in the transport sector, tax on pesticides in agriculture, air pollution tax, and airline ticket levies. 39 Jowett, Matthew and Kutzin, Joseph. (‎2015)‎. “Raising revenues for health in support of UHC: strategic issues for policy makers.” World Health Organization. https://apps.who.int/iris/handle/10665/192280. 40 “Health tax” is defined as tax on products that are harmful to health. Typical examples of such products include alcohol, tobacco, cannabis, sugar, junk food, gasoline, and polluting activities. 41 Innovative health financing mechanisms in peer countries include alcohol, tobacco, and sugar-sweetened beverage (SSB) taxes. Some peer countries, including Croatia and Romania, specifically earmarked taxes raised on alcohol and tobacco for health expenditures. Other countries raise such taxes as part of general government revenues. In Croatia, there are also contributions from mandatory car insurance, based on the idea that car accidents impose significant costs on the health system. Pooling The purpose of pooling is to spread financial risk across the population and promote fairness. The key aspects of pooling are (1) the overall level of prepaid resources and (2) the structural arrangements of pooling. Fragmentation in pooling is one of the major concerns in many countries around the world. The two dominant mechanisms are the Bismarck (health insurance system) and Beveridge (national health system) approaches. Social health insurance raises funds for health and offers a mechanism to transfer financial risks from rich to poor, from the healthy to the sick, and from the productive to the unproductive. Thus, it protects people against the financial and health burdens of illness and promotes fairness in health financing.41 Pools can be based on compulsory, automatic, or voluntary participation. The composition of pools influences their redistributive capacity. When coverage is compulsory or automatic for all population groups, pools include more diverse health risks, and their overall risk profile is more financially sustainable. Pools with voluntary membership are prone to adverse selection: people with higher risks are more likely to enroll than people with lower health risks, which limits the potential for risk pooling. It may also result in a cycle of increasing premium rates and other actions that insurers take to reduce their risks and improve their financial sustainability, which can further worsen adverse selection. Prepayment with subsequent risk-pooling is a desirable health financing mechanism. This approach largely addresses the adverse effects of relying on OOP payments. First, by making small regular contributions to future health care needs through taxation or insurance premiums, households are able to smooth consumption over time and across better and worse states of the world, increasing welfare. Particularly, households are not exposed to the risk of unpredictable and potentially catastrophic OOP costs. Second, financing health care through general government revenue or SHI, with contributions based on income, links payments to ability to pay. Kosovo’s peer countries rely on pooling through their health ministries and health insurance funds (Table 2). In most of the selected countries, funds pooled under the Ministry of Health are allocated to public health and prevention programs (population-based services), subsidies to cover co-insurance for certain vulnerable groups, and capital investments. The funds for services under the social health insurance systems (individual services) are pooled in the Health Insurance Fund. 41 World Health Organization. 2003. Social Health Insurance. Report of a Regional Expert Group Meeting”. World Health Organization. New Delhi, India, 13-15 March 2003. WHO Regional Office for South-East Asia. https://apps.who.int/iris/handle/10665/206364. Accessed 22 April 2020. 42 Table A1. Health funds pooling in selected countries Country Name Albania National budget (Ministry of Health); Compulsory Health Insurance Fund. Armenia State Health Agency under the Ministry of Health. Kyrgyz National budget (Ministry of Health); Mandatory Health Insurance Fund. Republic Moldova National budget (Ministry of Health); Health Insurance Fund. North National budget (Ministry of Health), Health Insurance Fund. Macedonia Bulgaria National budget (Ministry of Health); Health Insurance Fund. Croatia National budget (Ministry of Health); Croatian Health Insurance Fund. Estonia National budget (Ministry of Health); Estonian Health Insurance Fund. Latvia National budget (Ministry of Health); National Health Service. Lithuania National budget (Ministry of Health), National Health Insurance Fund. Romania National budget (Ministry of Health); National Health Insurance Fund. Slovenia National budget (Ministry of Health); Slovenian Health Insurance Institute. Source: Authors Purchasing Purchasing is the allocation of pooled funds to healthcare providers for the delivery of health. We typically distinguish between passive and strategic purchasing. Strategic purchasing links payments to provider performance and the health needs of the population they serve, while managing expenditure growth. Strategic purchasing involves several core areas that should be aligned and addressed jointly, namely: • Specification of services and interventions—“what to buy.” • Choice of providers—“from whom to buy.” • Design of financial and non-financial incentives—“how to buy.” This refers to provider payment mechanisms and contractual arrangements.42 42 Mathauer, I., E. Dale, M. Jowett, and J. Kutzin. 2019. “Purchasing of health services for universal health coverage: How to make it more strategic?” Policy Brief, Department of Health Systems Governance and Financing, Geneva: World Health Organization. 43 Fig A1. Core areas of strategic purchasing and policy questions Policy questions Policy questions WHAT TO BUY? FROM WHOM Managing Which services, information systems TO BUY? interventions and From which providers to medecines to buy and how to choose purchase, and what these? cost-sharing and referral arrangements are appropriate as Policy questions conditions of access? HOW TO BUY? What are the most Specifying Selecting appropriate provider benefits providers payment methods? What type of contractual obligations and other (non-)financial incentives Policy questions are available to Designing purchaser to increase What information to (non-)financial provider performance? generate, and how incentives best to manage, analyse and use it for Policy questions strategic purchasing decisions? HOW TO BUY? How to exert oversight * Governance is an Governance* over a purchasing agency overarching health for strategic purchasing to ensure accountability system function, but is and how to coordinate particularly relevant for across multiple strategic purchasing purchasing agencies? Source: Mathauer et al. (2019). Strategic purchasing can contribute to progress towards UHC and improve quality and efficiency through payment design. Strategic purchasing transforms budgets into benefits, with the aim of distributing resources equitably, realizing gains in efficiency and managing expenditure growth and improving quality. Strategic purchasers define the benefit package and the set of services purchased, and decide which providers to purchase services (contracting). Contracts define the relationship between the purchaser and provider, such as the range of services to be provided; quality expectations; method, timing and level of payment; the information that providers are required to submit; and outlining action that will be taken for poor performance. The benefit package is “a publicly managed list of guaranteed health services, accessed at approved health care providers by specific populations, with preestablished levels of financial support for beneficiaries.’’43 Benefit packages can be implicit, but an explicit benefit package is preferable as it can help to transparently prioritize services and redirect the allocation of resources to priority services. Most importantly (i) by creating explicit entitlements for the population, it empowers poor and marginalized groups, who otherwise would not be aware of any specific entitlement; (ii) it increases transparency and helps to reduce informal payments; (iii) it allows for proper costing of services committed to the population, and facilitates planning of service delivery and resource allocation; and (iv) it helps to determine whether funds are being spent wisely and on services that create maximum benefits for the society.44 The benefit package must be guaranteed with health care legislation. Roles and responsibilities of the different stakeholders in the benefit package design have to be precisely defined—same with the methodology for the benefit package design and review. 43 Nakhimovsky et al. 2015. Using Evidence to Design Health Benefit Plans For Stronger Health Systems: Lessons from 25 Countries. USAID’s Health Finance and Governance (HFG) project. 44 Glassman, Giedion, and Smith. 2017. What’s In, What’s Out: Designing Benefits for Universal Health Coverage. Washington, DC: Center for Global Development. 44 A key question for countries with UHC is what to include in the benefit package. There are various ways to define the benefit package found in legislation: health insurance law, which defines the insured groups and health service types and benefit areas, up to comprehensive list of main disease groups; with or without goals of their treatment—for example, regarding hypertension, which treatment is aimed to achieve normal blood pressure level. Estonian health insurance legislation defines that insured persons have rights for medically indicated health services, medicinal products, or medical devices (benefit in kind) and monetary benefits, such as for temporary incapacity for work or dentures. In comparison, the Croatian benefit package is defined in a separate policy document, which defines certain measures and procedures for disease prevention, treatment, and follow-up care, together with provider groups – general practitioners, nurses, community health workers – and target outcomes such as achieving normal blood pressure of 140/90 mmHg or requiring check-ups in every 6–12 months for patients of myocardial infarction. Table A2. Services covered by basic benefit package (BBP) in selected countries Country Services covered by BBP Armenia Primary care, maternity services, emergency services, sanitary-epidemiological services and treatment for about 200 socially significant diseases. Kyrgyz Primary health care services, emergency services, outpatient specialist and Republic hospital care, outpatient drug benefit. Moldova Primary, secondary and tertiary services, emergency services, outpatient drug benefit. North Negative list of excluded services, such as aesthetic surgery and above- Macedonia standard accommodation at hospitals, positive list of drugs – outpatient drug benefit. Bulgaria Primary, secondary and tertiary services, emergency services, dental care, medicinal products, medical devices, dietary foods for special medical purposes. Croatia Primary, secondary, and tertiary services, emergency services including ambulance transportation, outpatient drug benefit, dietary foods for special medical purposes, dental care, orthopedic devices and other medical aids, long term rehabilitation, home care. Estonia Preventive and curative health services, emergency services, dental services, pharmaceuticals (outpatient drug benefit), medical devices. Latvia Negative list of excluded services, such as dental care for adults, rehabilitation (with a long list of exceptions), medical checkups required for occupational reasons, sight correction and hearing aids (except for children), spa treatment, abortions (if there are no medical or social indications), and others. Lithuania No explicit positive list of health services, positive list of drugs (outpatient drug benefit). Romania Preventive health care services, ambulatory health care, hospital care, dental services, emergency services, medical rehabilitation, pre-, intra- and post-birth medical assistance, home care nursing, outpatient drug benefit, health care materials, and orthopedic devices. Slovenia Primary, secondary and tertiary services, emergency services including ambulance transportation, outpatient drug benefit, medical devices, long- term nursing care. Slovenia National budget (Ministry of Health); Slovenian Health Insurance Institute. 45 Purchasing includes two main elements: the set of rules governing how the purchasing institution interacts with providers (contracting) and the systems through which purchasing organizations pay providers (provider payment mechanisms). A provider payment method may be defined simply as the mechanism used to transfer funds from the purchaser of health care services to the provider(s). A provider payment system may be defined as the payment method combined with all supporting systems, such as contracting, management information systems, and accountability mechanisms that accompany the payment method. In the context of health systems, therefore, provider payment systems accomplish far more than simply the transfer of funds to cover the costs of services.45 A purchaser such as the HIF uses a diverse mix of payment mechanisms to compensate providers for the provision of services. There is no payment classification system that can accurately categorize every single patient. Some of the most common mechanisms of payment options for the HIF are presented below in Box A1. Box A1. Most common provider payment methods Line-item budgets - The allocate a specific amount of funds for providers to cover specific budget line items such as personnel and medicines, over a defined time period (typically a year). Per-diem- payment for some services as accommodation and nursing fees. It means fixed amount of payment to the provider. Fee-for-service - Under FFS, patients and purchasers pay the provider retrospectively for each service rendered. Payment for secondary and tertiary services such as radiologic and laboratory services which have been pre- authorized by the HIF, in line with the HIF Service Tariff. Capitation – Purchasers prospectively pay providers a predetermined fixed per capita per beneficiary for delivering a defined set of services over a specific time period. An actuarially-determined amount of money pay-per-unit enrollee per month for primary health care services including 24 hours admission. Case-based payment – Retrospective payment for a set of services provided per medical case based on the average costs to provide services for that type of case, regardless of variables like length of stay. Diagnoses related groups (DRGs) - payment for related groups of secondary and tertiary services through a pre- determined amount in line with the HIF Service Tariff. Adapted from Gutierrez et al 2017 Payment models can blend different payment methods to create the mix of incentives that aligns provider behaviors with sector objectives while mitigating potentially adverse effects. For example, capitation and FFS payments are often combined to pay primary care providers. While the capitation component encourages providers to limit service volumes and contain costs, FFS payments are used to promote the provision of priority services such as vaccinations; services and procedures which require costly supplies, such as injectable medicines, to avoid their under-provision; and services which lie on the border between primary and specialist care, for example, wound care, drainage of abscesses, and removal of benign lesions, to avoid referrals to specialists. Add-on payments which reward quality and performance, known as Value-based 45  Langenbrunner, John C.; Cheryl S. Cashin, and Sheila O’Dougherty. 2009. Designing and Implementing Health Care Provider Payment Systems : How-To Manuals. Washington, DC: World Bank. 46 Purchasing (VBP), or Pay-For Performance (P4P), also sit alongside these payment systems. P4P payments focus on the degree of achievement of specific defined objectives by providers or practitioners. Recently, some health systems have embarked on more innovative changes designed to improve care coordination and delivery for patient populations with complex health needs that span across levels of care, and increasingly focus on quality metrics for monitoring and performance. “Traditional” payment such as line-item budgets or per diem payments are still used in many health systems, but in modern health care payment models they have been mostly phased out from systems because of the negative incentives associated with them. Per diem payments still remain more common in some settings where DRG implementation has been particularly challenging, notably mental health care and long-term care. Table A3. Provider payment models in selected countries Country Reimbursement for PHC Reimbursement for hospital care Albania Capitation. Global budget. Armenia Capitation. Global budget. Kyrgyz Republic Capitation, FFS, and P4P. DRG. Moldova Capitation, P4P. DRG. North Macedonia Capitation, P4P. DRG. Bulgaria Capitation, FFS. Case-based. Croatia Overhead, Capitation, FFS, and P4P. DRG, Per diem, P4P. Estonia Capitation, FFS, P4P. DRG and Per diem. Case-based, Per diem, and Lump Latvia Capitation, P4P. sum. Lithuania Capitation, FFS, and P4P. DRG. Romania Capitation and FFS. DRG, Per diem, and Lump sum. Slovenia Capitation and FFS. DRG and Per diem. Note: FFS – fee for service; P4P – pay-for-performance; DRG – diagnosis-related groups. Source: Authors 47 WORLD BANK GROUP