Vietnam’s Health Care System: A Macroeconomic Perspective

Over recent years the thrust of Vietnam’s health sector strategy has emphasized active prevention, public service delivery at the “grass roots” level, the need to mobilize the entire society in support of improved health care, the expansion of health insurance cover, the value of traditional medicine, and the active participation of the private sector under the government’s leadership.5 The high annual GDP real growth rate of 7 percent has enabled people to pay increasingly out of pocket, to the neglect of Government’s increasing its share of expenditures allocated to health

Vietnam’s Health Care System:

A Macroeconomic Perspective*

Paper Prepared for the International Symposium on

Health Care Systems in Asia Hitotsubashi University, Tokyo

January 21-22, 2005

© Susan J Adams, Ph.D

Senior Resident Representative International Monetary Fund

Hanoi, Vietnam

*The views expressed in this paper are those of the author and do not necessarily reflect official views of either the International Monetary Fund or the Government of Vietnam The author expresses appreciation to colleagues in the Consultative Group of Vietnam for generously sharing their views and information about the health sector of Vietnam

ABSTRACT

Vietnam’s health indicators are better than would be expected for a country at its

development level, and they continue to improve at rates that equal or surpass those in most neighboring countries However, in the midst of a major program of poverty reduction and economic growth, Vietnam’s health care system is in the midst of a dramatic transformation Twenty years ago, it was firmly controlled by the central government But the ability of the Ministry of Health (MOH) to shape activities has diminished significantly, due to the rapid growth of the private sector, the much larger role of out-of-pocket expenditures, and the ongoing process of fiscal decentralization Over time, new policy tools have been developed, including user fees, health insurance and health-care funds for the poor These tools all focus

on the financing of health, but still fail to merge into a coherent health financing system This paper outlines the current structure and effectiveness of Vietnam’s health sector from the perspectives of public finance administration and macroeconomic tradeoffs The paper will first compare Vietnam’s health sector to those of other countries in Asia A discussion

of health spending in the context of overall public expenditure priorities in Vietnam will follow, with special attention to how the health sector is evolving within the context of Vietnam’s Comprehensive Poverty Reduction and Growth Strategy (CPRGS) and

longer-term planning framework

I Introduction

Vietnam has been characterized by remarkably pro-poor economic growth since the start of

its doi moi, or economic reform program in the late 1980s The percentage of the population

living on less than 2100 calories per day fell from 58 to 29 percent between 1993 and 2002 This spectacular success results from the combination of sound macroeconomic

management, increased reliance on market mechanisms, a strong emphasis on the delivery of social services, and sustained improvements in infrastructure

Along with all sectors in the economy, Vietnam’s health care system is in the midst of a dramatic transformation Twenty years ago, it was firmly controlled by the central

government But over time the ability of the Ministry of Health (MOH) to shape activities has diminished significantly, due to the rapid growth of the private sector, the much larger role of out-of-pocket expenditures, and the ongoing process of fiscal decentralization New policy tools have been developed, including user fees, health insurance and health-care funds for the poor These tools all focus on the financing of health, but still fail to merge into a coherent health financing system And they coexist with tools organized by disease category, which operate under the form of National Health Programs (NHPs) There is little

coordination between those programs, despite the fact that they often have the same target population (as in the case of tuberculosis and HIV/AIDS) and no mechanism in place to ensure that they are discontinued once their objectives are achieved 1

The purpose of this paper is to outline the current structure and effectiveness of Vietnam’s health sector from the perspectives of public finance administration and macroeconomic tradeoffs The paper will first compare Vietnam’s health sector to those of other countries in Asia A discussion of health spending in the context of overall public expenditure priorities

in Vietnam will follow, with special attention to how the health sector is evolving within the context of Vietnam’s Comprehensive Poverty Reduction and Growth Strategy (CPRGS) and longer-term planning framework Targeted health programs will also be reviewed, including the recent focus on targeted spending for HIV/AIDS by both the Government and donor community Financing options and challenges for the future will conclude the paper

II Vietnam’s Health Sector in the Asian Context

Vietnam’s health indicators are better than might be expected for a country at its stage of overall development, and they continue to improve at rates that equal or surpass those in most neighboring countries In terms of life expectancy adjusted for years lost to disabilities, Vietnam ranks 116among 191 members of the World Health Organization (WHO), not very different from much wealthier countries such as Greece and Brazil.2 Vietnam—to the extent the data are comparable has also continued to make impressive progress in reducing infant

1 See World Bank, Vietnam Development Report 2005 (VDR 2005): Governance

Prepared for the Vietnam Consultative Group Meeting, Hanoi, December 1-2 2004

2 See WHO website for Vietnam: (http://www3.who.int/whosis/country)

mortality and under-five mortality rates Progress in controlling vaccine-preventable

diseases, such as measles, diphtheria and tetanus, has been rapid as well; polio was

completely eradicated in 1996 Improvements are considerable in reproductive health too The total fertility rate fell from 3.8 in 1988-1992 to 2.7 in 1992-1996 Estimates for

1998-2002 put it at 1.9, below replacement level.3

While there are several impressive achievements, Vietnam also faces several serious

challenges in the health sector, including several problems that previous policies have not yet resolved In particular HIV/AIDS incidence is now just at the threshold of moving from the most vulnerable groups into the general population.4 Moreover, according to data from the 2001-02 Vietnam National Health Survey (VNHS) and the 2002 Vietnam Demographic and Health Survey (VDHS), large disparities exist in many key health indicators by region, income and ethnicity These disparities are further compounded by the advent of new health challenges, including SARS, avian flu and resistant strains of other diseases

In terms of health spending, Vietnam again has achieved remarkable results for a country that has limited public resources and per capita GDP Referring to Table 1, amongst countries in Asia, Vietnam spends about 5-6 percent GDP on health care (both public and private

expenditure), twice as much as its neighbor Lao PDR, but half as much as Cambodia In standardized dollar terms (Table 2), Vietnam spends relatively little in purchasing power terms compared to other countries in Asia But the more interesting story lies in the split between public and private expenditure: in Vietnam, only about one-fourth of health

spending emanates from the public sector (Table 3), with the preponderance paid by private sector sources -only Cambodia has a lower share of public/private spending in the region And across categories of general government spending (Table 4), Vietnam allocates only about 6 percent to health care, with less than one percent of GDP spent on current health services

Over recent years the thrust of Vietnam’s health sector strategy has emphasized active

prevention, public service delivery at the “grass roots” level, the need to mobilize the entire society in support of improved health care, the expansion of health insurance cover, the value

of traditional medicine, and the active participation of the private sector under the

government’s leadership.5 The high annual GDP real growth rate of 7 percent has enabled people to pay increasingly out of pocket, to the neglect of Government’s increasing its share

of expenditures allocated to health

3 VDR 2005

4 See The Macroeconomics of HIV/AIDS, edited by Markus Haacker (Washington, DC,

International Monetary Fund, 2004) for a general discussion of the economic impacts of HIV/AIDS on poverty and development

5 Vietnam Public Expenditure Review and Integrated Fiduciary Assessment 2004, draft

version, October 5, 2004, World Bank

TABLE 1 Vietnam (Compared with other countries in WHO Western Pacific Region) Indicator:

Total expenditure on health as % of GDP, 2001

Country Ordered by Total expenditure on health as % of GDP, 2001

Micronesia (Federated States

Lao People's Democratic

Source: World Health Organization, Country website for Vietnam (http://www3.who.int/whosis/country).

Table 2 Vietnam (Compared with other countries in WHO Western Pacific Region) Per capita total expenditure on health in international

dollars, 2001

Definition: Total health expenditure per capita is the per capita amount of the sum of Public Health

Expenditure (PHE) and Private Expenditure on Health (PvtHE) The international dollar is a common currency unit that takes into account differences in the relative purchasing power of various currencies Figures expressed in international dollars are calculated using purchasing power parities (PPP), which are rates of currency conversion constructed to account for differences in price level between countries

Country Ordered by Per capita total expenditure on health in international dollars, 2001

Micronesia (Federated States

Lao People's Democratic

Source: World Health Organization, country website for Vietnam ( http://www3.who.int/whosis/country )

Table 3 Vietnam (Compared with other countries in WHO Western Pacific Region)

Indicator:

General Government expenditure on health as % of total

expenditure on health, 2001

Definition: Public Health Expenditure (PHE) is the sum of outlays on health paid for by taxes, social security

contributions and external resources (without double-counting the government transfers to social security and extra-budgetary funds)

Country Ordered by General Government expenditure on health as % of total expenditure on health, 2001

Solomon Islands 93.5

Source: World Health Organization, country website for Vietnam ( http://www3.who.int/whosis/country )

Table 4 Vietnam (Compared with other countries in WHO Western Pacific Region)

Indicator:

General Government expenditure on health as % of total

Definition: Public Health Expenditure (PHE) is the sum of outlays on health paid for by taxes, social

security contributions and external resources (without double-counting the government transfers to

social security and extra-budgetary funds) General Government Expenditure corresponds to the

consolidated outlays of all levels of government; territorial authorities (Central/Federal Government,

Provincial/Regional/State/District authorities, Municipal/ Local governments), social security

institutions, and extra-budgetary funds, including capital outlays

Country Ordered by General Government expenditure on health as % of total general government expenditure, 2001

Source: World Health Organization, country website for Vietnam ( http://www3.who.int/whosis/country )

III Expenditure Allocation within Vietnam’s Health Sector

Decentralization of health care delivery has been an ongoing process in Vietnam for several years, and has accelerated recently with the CPRGS rollout This has led to an increasing share of government health spending at the local level (provincial level and below) The new State Budget Law, effective from January 2004, has given increased budget autonomy to provinces by providing recurrent funding on two block grants, one for “wages and salaries” and the other for “all other operations and maintenance” The size of these block grants depends on the provinces’ population size, disease patterns and differential resource needs Notwithstanding arguments about enhancing government ownership, however, there remains little understanding about the methods used by provinces to allocate funds internally across districts and communes Because of this, inequities in the allocation of government health funding at the district and commune levels may effectively offset any apparent improvements

in equity at the provincial level

Overall, public spending on health is regressive, in the sense that richer households get a larger share than poorer households (Table 5) But this pattern hides important differences across health-care facilities For example, government hospitals are more easily accessible to richer households Despite higher operating costs in remote areas, which tend to be poorer, most spending in these areas benefits richer households, with the top quintile getting almost one third of the total The opposite is true for spending in commune facilities, which

disproportionately benefits the poor In fact, Vietnam’s health success is attributable largely

to its wide net of commune-level health centers (CHCs) There is one medical staff in every commune nationally, and only 1.4 percent of communes lack a medical station About 96,604 medical staff are working in 116,359 villages nationally

Table 5: Spending on Public Health, from Poor to Rich

Quintile

Percent

of annual visits

Public spending per visit (VND)

Percent

of public spending

Percent

of annual visits

Public spending per visit (VND)

Percent

of public spending

Percent of public spending Poorest 10.9 9838 10.7 25.5 1118 24.4 13.5

Middle 19.9 6982 20.2 20.5 922 20.6 20.3

Richest 29.1 7038 31.4 10.5 1003 11.2 26.9

Note: Figures include both inpatient and outpatient visits

Source: VDR 2005

Despite continuing disparities in government health spending among and within provinces,

the main source of inequality in the distribution of health costs stems from

out-of-pocket spending With total public expenditures representing only about one percent of

GDP, health care costs are mainly borne by households Under Decree 10, an increasingly large number of health treatments are provided by public hospitals on a paying basis

Unofficial payments of various sorts imply that the burden on households is even heavier than suggested by Table 3; private out-of-pocket spending may represent as much as 80 percent of total spending on health care in Vietnam.6

Disparate levels of health spending correlate with the persistence of substantial disparities in health status indicators, by region, income and ethnicity In 2002, a four-fold range could be observed in the infant mortality rate between the Northern Mountains (40.9 per thousand) and the Southeast (11.3), as well as between those with no education (58.6) and those who had completed secondary school (13.2) Differentials also exist in morbidity rates For example, the average annual number of days people are unable to work due to illness is more than twice as high in the poorest quintile of the population than in the richest quintile

To address these problems, the Government’s strategy for the health sector is necessarily turning towards the introduction of health insurance and the public funding of health care expenses by the poor In particular, Decision 139 has strengthened earlier targeted

interventions by creating province-level Health Care Funds for the Poor (HCFP) These funds are allocated 70,000 VND (less than US$5) per beneficiary per year, with 76 percent covered by the central budget and the rest by other sources such as individual and community contributions Provinces can allocate HCFP resources to the direct reimbursement of health care costs, or to the purchase of health insurance cards As of 2003, there were 11 million HCFP beneficiaries, representing 84 percent of the target population Out of this group, one third had been granted health insurance cards and two thirds had been entitled to direct reimbursements of health care costs.7

While the level of HCFP funding per beneficiary is believed to be inadequate to cover the cost even of their user fees and basic drugs at government health facilities, Decision 139 paves the way to make public health spending much more progressive The MOH is now calling for a doubling in the level of funding provided to HCFPs Most of this additional

spending would benefit people in the poorest two quintiles of the population

In addition to HCFPs, there have been a range of targeted programs in place, aimed at

improving livelihoods through exemptions of user fees, access to credit or the development

of local infrastructure Overall, these targeted programs have performed quite well,

especially in terms of identifying poor households and poor communes But they are

currently hampered by errors in poverty measurement, causing the geographical allocation of resources not to always match local needs

IV Targeted Health Programs under HEPR and Program 135

The national targeted program for Hunger Eradication and Poverty Reduction (HEPR) was formally launched in July 1998 to target poor households to receive a range of benefits,

6 VDR 2005

7 Ibid