A Sverdlovsk bureaucrat is delighted to hold a funeral for our budget

10.11.2010 — Analysis

The government of the Sverdlovsk region has increased the funding for earmarked programs by a factor of six. Regional officials in particular expect to substantially improve people's quality of life and even create a "new healthcare system." But as this columnist for RusBusinessNews explains, trying to reform medicine by pouring more money into it won't work. The earmarked programs in the Russian regions have long been the shovel used to bury the budget.

The Sverdlovsk region has about 40 earmarked programs and billions of rubles from the budget go to fund them. But, Evgeny Animitsa, the head of the Department of Regional and Municipal Economics at Ural State University of Economics, claims all this investment has practically no effect. According to Yuliya Lavrikova, the deputy director for scientific affairs at the Institute of Economics of the Urals branch of the Russian Academy of Sciences, out of all the programs the scholars there have helped develop, only one returned any real results. There has never been any scientific study of why this investment is so ineffective, nor has the damage done to the budget been evaluated. Andrei Izmodenov, the director of the Accounting Chamber of the Sverdlovsk regional Legislative Assembly, told RusBusinessNews that no comprehensive analysis of the results of the earmarks has ever been made.

Even government officials have been forced to recognize the ineffectiveness of the budgetary expenditures. Governor Aleksandr Misharin recently decided to shut down some programs that were not improving anyone's quality of life. Audits showed that there were hospitals in the Sverdlovsk region that have been under construction for decades and the number of orphans who must be provided with free housing is only increasing, despite the subsidies allocated from the budget. The governor cut the number of programs to 24 and provided those remaining with six times their previous funding, amounting to about 19 billion rubles over the next five years. The Ministry of Culture will receive three billion, healthcare will get more than four billion, education - 4.5 billion, 784 million will be spent on the patriotic education of Russian youth, etc.

Experts believe that it would be very difficult to track these expenditures, because the majority of it pays for capital construction and equipment purchases, areas which are hotbeds of corruption and bribery. And Russian officials are accustomed to manipulating prices. For example, the program for the patriotic education of youth included plans to construct 99 obstacle courses in 2007-2009, at a cost of 100,000 rubles each (9.9 million rubles). Then it turned out that the obstacle courses would cost three times that much, so adjustments had to be made to the regional budget. And now the government is proposing to allocate more than 700 million rubles to this project! A simple calculation shows that one could build 5,000 obstacle courses for that amount of money - a bit excessive for the Sverdlovsk region, which only has 47 cities and 1,886 villages.

Healthcare expenditures are "entombing" the budget in a particularly ruthless way. As of Jan. 1, 2011, Russian businesses will have to pay an extra 2% into the mandatory health insurance fund. Kremlin officials claim that the resulting 460 billion rubles will be spent on infrastructure projects in the Russian regions. But only those governors who develop their own programs to modernize healthcare will get the money. The government of the Sverdlovsk region has announced its intention to create a "new healthcare system" within the next two years. But it seems the Union of Industrialists and Entrepreneurs of the Sverdlovsk region had some doubts about the government's sincerity, because they offered the assistance of experts from their own union, as well as representatives of labor unions, to help develop this regional program to modernize healthcare. The concerns of the employers are quite understandable. The business and personal relationships currently in place in the world of medicine hinder the implementation of any effective project. For example, according to Andrei Izmodenov, 10 million rubles were sent to build a clinic in Krasnoturinsk in 2006, but construction has yet to begin. The following year, 20 million rubles were allocated from the regional budget for the same project, but once again the funds were not utilized. 60 million rubles were pledged to the facility in 2008, but the builders have yet to make an appearance at the site. As a result, the project has become dramatically more expensive (they planned to spend 390 million rubles on the clinic in 2009), and these new costs obviously had to be included in the plans of the builders and investors. However, experts claim that it is often the regional authorities themselves who are to blame when projects don't get off the ground. They either allocate money too late or the promises of funding never come through at all. Sometimes hospitals are actually built, but then it turns out there is not enough money to keep the new facilities running. The state is not currently able to finance healthcare. In many of Ekaterinburg's specialized medical centers, there is a 9:1 ratio of fee-based to free services. Recently, the city has seen a number of lawsuits between health insurance providers and municipal hospitals - the first group accused the second of charging patients illegal fees. It turns out that specialized medical centers are claiming insufficient funds or lack of needed medicines and either sending patients to private clinics or forcing them to pay for allegedly additional services by means of "voluntary medical insurance." It's clear that doctors in municipal hospitals are colluding with private clinics and getting a certain percentage from them in return. The end result is that employees of specialized medical centers, which are funded through earmarked government programs, are making money in the most ruthless way and taking no responsibility for the quality of the medical care.

It's obvious that pumping far more earmarked money into the existing model of healthcare makes no sense at all. Healthcare facilities will devour any money they are given and will continue to demand money from patients. In the absence of competition between hospitals, the quality of treatment will continue to languish in 10th place. Experts claim that only an independent investigation can check the financial appetite of healthcare workers. But what's remarkable is that even government officials are uninterested in developing this kind of monitoring tool for budgetary expenditures.

According to Maksim Starodubtsev, the director of the Association of Regional Health Insurers, attempts to audit medical records only spark strong resistance from healthcare administrators. For example, one hospital refused to submit medical records to an insurance company and it took six months for the Board of Health just to review the insurance company's complaints about the fact that what the doctors were doing was illegal. Some bureaucrats blamed others, who then blamed yet another group, and so on.

By causing confusion, the officials are trying to conceal their primary interest - stamping out the very idea of competition in healthcare, which keeps money from being disbursed to the "right" companies and institutions. So, the stage is set to treat not the patient, but the disease, which is implementing the budget money.

The regional government understands that their proposed financial projects would not survive a public audit and so are trying to make the earmarked programs as opaque as possible. According to Evgeny Artyukh, a deputy in the Sverdlovsk Regional Duma, budgetary expenditures are far from transparent, and earmarked funds are approved retroactively by the regional Legislative Assembly. Officials do not deign to answer to the public and show contempt for their opponents. And quick audits conducted on the basis of fresh evidence show that funds were spent either illegally or ineffectively.

Experts agree that if the government really wanted to modernize healthcare, much less improve people's quality of life, they wouldn't create earmarked funds, but would simply prohibit doctors from writing prescriptions and diagnostic referrals to fee-based hospitals, ban all peddlers of nutritional supplements from clinics, and create a transparent system to determine eligibility for free hospitals, diagnostic tests, and expensive operations. In addition, they would have told people about the government contract and explained what one has the right to demand from a healthcare worker and where to register complaints about violations of patient rights. The government should also have made a point of punishing those who are gaming the system. For example, they could stage a few sting operations in the hospitals that are extorting money to perform surgery.

All these steps could be taken without having to increase the healthcare budget and they would earn the gratitude of taxpayers. But since that's not happening, one must think that this six-fold increase in earmarked funding is concealing the desire of the government officials of the Sverdlovsk region to keep as much of the budget "in the dark" as possible.

Konstantin Dzhultaev and Vladimir Terletsky