The impact of the economic recession on Latvia’s economy is characterised by a decline in gross domestic product (GDP), weak entrepreneurship and a strict fiscal policy. One economic sector that has been particularly affected by the cuts in budget spending is the health and social work sector. According to an agreement with the social partners, the financing of healthcare in 2009 has decreased by 21% in comparison with 2008.
One of the sectors particularly affected by budgetary cutbacks arising from the economic recession is Latvia’s healthcare sector. As well as a reduction in funding, the sector is also undergoing significant reorganisation, with large-scale job losses, reduced services and the merging of institutions. While the government believes that its cuts are justified, experts have accused the state of incompetence and of adopting a linear spending cuts policy.
The impact of the economic recession on Latvia’s economy is characterised by a decline in gross domestic product (GDP), weak entrepreneurship and a strict fiscal policy. One economic sector that has been particularly affected by the cuts in budget spending is the health and social work sector. According to an agreement with the social partners, the financing of healthcare in 2009 has decreased by 21% in comparison with 2008.
Reform of healthcare institutions
Changes in Latvia’s budget in 2009 envisage not only a decrease in the financing of all state administration institutions, but also a reorganisation of some of these institutions. On 29 July 2009, the Regulation of the Cabinet ‘on the reorganisation of state administration institutions subordinated to the Ministry of Health’ was issued. Under the regulation, the state Public Health Agency (Sabiedrības Veselības Aģentūra, SVA) was to undergo reorganisation by 1 September 2009. Moreover, the following state agencies were to be reorganised by 1 October 2009:
Latvia’s State Agency of Medicine (Zāļu Valsts Aģentūra, VZA) – it is planned to establish a Healthcare Economy Institute in its place;
the Health Compulsory Insurance State Agency (Veselības Obligātās Apdrošināšanas Valsts Aģentūra, VOAVA) – the agency will be reorganised and replaced by the Healthcare Payments Centre;
the Professional Medical Education Centre (Medicīnas Profesionālās Izglītības Centrs, MPIC) – the functions of the centre are to be redistributed between the Ministry of Health (Veselības Ministrija), the Healthcare Payments Centre, the Health Inspectorate (Veselības Inspekcija) and the Healthcare Economy Institute;
the Health Statistics and Medical Technologies State Agency (Veselības Statistikas un Medicīnas Tehnoloģiju Valsts Aģentūra, VSMTVA) – the functions of this agency will be redistributed between the Ministry of Health, the Health Inspectorate, the Healthcare Economy Institute and the VZA.
As a result of the structural changes, the number of employees in these areas has decreased by 43% since September 2009. Thus, the previous number of 155 employees has been reduced to 89 employees at the Ministry of Health and to three employees at the minister’s office. It is estimated that this cost-cutting measure will result in a saving of LVL 88,000 (about €125,213 as at 12 October 2009) in 2009 and of LVL 596,000 (€848,032) in 2010. Nevertheless, experts argue that the efficiencies produced by reduced administrative costs are low, and that additional financing will still be necessary for the provision of healthcare services.
Changes in healthcare system
As outlined, the reforms in the healthcare sector have been introduced to lower costs. The most significant changes in healthcare are defined in the Cabinet Rules No. 1046 on ‘the order of healthcare organisation and financing’. Accordingly, the office hours of a general practitioner (GP) are to be increased from 20 to 25 hours a week; moreover, patient registration at GPs is to be simplified, while the number of services being funded by the state is to be reduced.
Since 1 September 2009, the following changes have been put in place in the healthcare system:
the number of hospitals providing extensive medical care support has been reduced;
a special list has been compiled of hospitals provided with financing for ensuring the continuity of medical care.
Impact of changes
The reforms carried out by the Ministry of Health will lead to the concentration of patients in the country’s largest regional hospitals and in the two hospitals in Latvia’s capital city of Riga – the Paula Stradiņa Teaching Hospital University and the Riga East Teaching Hospital University. On the other hand, the cuts in budget expenditure will increase household spending on healthcare and lead to growing competition with the private medical care institutions.
Given that the government has cut the budget for healthcare services by LVL 75.52 million (€107.45 million) in the second half of 2009, the choice and amount of state-funded healthcare services have also been reduced. Since 1 September 2009, the state budget no longer provides funding for patients who have been sent for medical rehabilitation services directly from the hospital and who are receiving rehabilitation during the six months after they have been discharged.
After the reorganisation that was due to be implemented by 1 October 2009, the number of employees in the Ministry of Health and its institutions will decrease from 1,375 to 603 employees, representing a significant drop compared with 2004, for example, when some 1,699 persons were employed in healthcare administrative institutions.
Co-financing option
On 11 August 2009, the Cabinet approved the implementation of projects and measures co-financed by EU funds and by other foreign financial sources. After long discussions, LVL 3 million (€4.27 million) was granted from the state budget for the infrastructural development of healthcare institutions. Thus, owing to state budget co-financing, the possibility of using EU funds has been provided for, allocating a potential sum of LVL 17.1 million (€24.3 million) for hospitals’ infrastructural development.
Criticisms of cutbacks
Experts have accused the state’s policymakers of incompetence and questioned the economic justification for their allegedly linear spending cuts policy.
One of the implications of the cutbacks is more expensive healthcare for the private sector. As the staff lay-offs are still being implemented, the solvency of Latvian regional hospitals is also under question. For example, since 1 September 2009, emergency medical services at the First Riga Hospital are only available every second day. The funding for this hospital was cut by 70% and, since September 2009, two thirds of the personnel or 570 employees have been dismissed.
Latvia’s Trade Union of Health and Social Care Workers (Latvijas Veselības un Sociālās Aprūpes Darbinieku Arodbiedrība, LVSADA) took an active part in the dialogue with the social partners regarding the budget cuts in healthcare. However, the social partners failed to reach consensus on working conditions in the healthcare sector.
Commentary
The impact of the spending cuts on the future development of the healthcare sector and their overall effect on the population’s health have not yet been investigated. There are no studies on the possible long-term outcomes of strict fiscal policy and how these changes may affect labour supply in the healthcare sector.
Irina Curkina, Institute of Economics, Latvian Academy of Sciences
Eurofound recommends citing this publication in the following way.
Eurofound (2009), Healthcare sector hit by recessionary cutbacks, article.
