Name of cluster:
Payment Systems Reform
Time of implementation:
2015 - 2020 years


The Payment System Reform is a key component to the reform of the national health system of Ukraine.

        The Government of Ukraine has a wide range of opportunities to use the respective experience of many advanced and developing countries applying various targeting arrangements for the reform in the sector, including strategic purchase of health services through (i) splitting of the health system into purchasers/providers and enhancing the level of the provider's autonomy; (ii) introducing prospective performance-based payment mechanisms for providers of health services where "money follows patient" and ensuring that the needs of the population are covered to achieve the best cost-effectiveness of service delivery; (iii) improving the access of the entire population to health services within a guaranteed basic benefit package of services to be provided free of charge and/or with patient co-payment along with creating and introducing an efficient referral system for the patients across levels of care; (iv) ensuring financial protection of the poorest and other vulnerable target groups of the population, (v) improving the provision of necessary medicines for the population within the schemes of management of the most significant diseases by introducing shared responsibilities and incentives for patients and health professionals.

        The reform of the national health system financing has to envisage a transition to a single payer model whereby the payer will be responsible for purchasing health services and ensuring that the needs of the population for medical care within the state-guaranteed package of free care are covered through signing contracts on strategic purchase of respective services with their providers.

        It is envisaged that in the longer term in order to solve this task a respective single payer agency would be identified as an agency which would be functionally subordinated to MoH and would operate at the central and regional levels. This solution would enable securing sufficient pooling of financial resources of the national health system necessary to overcome one of its most important problems, which is fragmentation of resources. At the initial stage, which envisages piloting a new payment system under the Project, the functions of the payment agency and its regional units would be performed by the MoH of Ukraine and the regional health authorities within the oblast state administrations and the City of Kyiv (hereinafter – oblast health departments, OHD). At present, in accordance with the national legislation the latter function as the main administrators of the budget funds in the health system. Respectively, their functions would be expanded with strengthened technical and HR capacities.

        Currently, the funds for health budgets are allocated to local authorities based on the population size formula, and then local authorities responsible for development and approval of budgets for respective administrative territorial units develop and approve the health budgets for the territories under their jurisdiction. De jure the legislative procedure gives oblast authorities and other local bodies some room to distribute resources among health institutions based on their needs and performance, however de facto the opportunities are limited by constraints imposed by the budget law (the so called protected budgetary lines often absorb the major part of the resources) and strict regulations on the resources allocation criteria which still follow mainly input-based norms.

        To ensure transition from the current inefficient model of financing health providers to performance-based financing methods for them, a new hospital payment system based on Diagnostic Related Groups (DRGs) would be designed, piloted, and implemented in Ukraine under the Project.

        Introduction of a new financing system would furthermore require introduction of qualitatively new interaction between the purchasers and providers of health services that should be based on direct contractual relationships between the actors. Therefore, the envisaged reforms would require redefining the economic and legal status of hospitals aimed at enhancing their economic, financial and managerial autonomy, and introducing a qualitatively new system of their internal governance structure in order to ensure provision of the highest possible quality health services at the lowest possible cost.

        Within the framework of introduction of a new DRG-based payment system of hospital financing, it would also be critical to enhance the ability of the authorities (that would act as an agency responsible for procurement of health services with budget funds) to ensure efficient clinical and financial audit/monitoring of hospitals' activities, to provide explicit incentives for improvements in the quality of monitoring of repeat requests for care and other possible forms of behavior of health service providers, like overpricing the services, and to set forth explicit provisions to control budget expenses (for example, the expenses for the services in volumes exceeding the pre-agreed threshold envisaged by the procurement contract may be reimbursed following a declining scale).

        The objectives of the Payment System Reforms activities under the Project are as follows:

            a. Prepare the ground and pilot a new hospital payment system that rewards hospitals based on the number of patients and the clinical complexity of treated cases and the associated resource needs, according to the DRG patient classification system.

            b.  Design a new health financing strategy that would also reform primary and outpatient care payment systems, and provide incentives to treat patients at the lowest possible level of care where their diseases can be adequately detected and treated.

            c.  Design legal and institutional fundamentals of strategic budget-funded purchasing of health services and unified contract templates regulating the procedure of interaction between the purchasers of these services represented by MoH and OHD and specific service providers, starting from the level of hospitals.

        Initially, the Project would support revision and improvement of the hospital records and information systems to collect all the necessary information necessary for introduction of DRG, establishment of the relevant institutional infrastructure for DRG implementation, training in DRG coding and analyses of associated statistics, procurement of hardware for DRG activities and development of DRG software as required for implementation of DRG on the base of the logic of Australian DRG-system modification which MoH selected as a basis. Furthermore, respective training should be provided for the MoH, OHD and hospital staff responsible for drafting and entering into contracts on strategic purchasing of health services, under which budget resources would be allocated and used on the basis of the DRG methodology.

        In addition, following the MoH decision to adopt a new strategy of health financing, legislative changes would be drafted for other health financing reforms. Full-fledged implementation of new resource allocation criteria and the payment system for providers of health services in the sector would require a 4-5 years transition period. The Project would prepare the ground for such transition by setting in place the necessary information, institutional and regulatory fundamentals.

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