VZCZCXRO9348
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #2747/01 1300859
ZNR UUUUU ZZH
P 100859Z MAY 06
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC PRIORITY 8471
INFO RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY
RUEAUSA/DEPT OF HHS WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS SECTION 01 OF 04 BANGKOK 002747 
 
SIPDIS 
 
SIPDIS 
 
STATE PASS HHS/OGHA FOR ELVANDER AND BHAT 
COMMERCE FOR JKELLY 
 
E.O. 12958: N/A 
TAGS: ECON EFIN TH
SUBJECT: UNIVERSAL HEALTH CARE MENDING BONES BUT BREAKING 
BUDGETS 
 
¶1.  Summary:  Thailand's universal health care system 
introduced by caretaker PM Thaksin has earned broad 
popularity among the Thai public.  However, it has faced 
heavy criticism for being chronically underfunded, forcing 
public hospitals to cut back on service and placing numerous 
hospitals into the red and facing the possibility of 
bankruptcy.  At the same time, the expanding costs of the 
program are fueling fears that the RTG health budget will be 
overstretched and bring the entire health care system 
crashing down with it.  Although health care costs are rising 
as a share of the national budget, analysts are confident 
that with the expanding economy and concomitant tax revenue, 
the national budget can handle the cost and that the 
program's popularity will eventually translate into fuller 
funding.  End summary. 
 
Shot in the arm to Thai health, but a pain in the budget 
--------------------------------------------- ----------- 
 
¶2.    In 2001, following on the campaign promises of newly 
elected PM Thaksin, Thailand embarked on a universal health 
care coverage system requiring a co-payment of only 30 baht 
(75 cents) for virtually any medical treatment, including 
medicines.  The 30 Baht program, as it came to be known, has 
been hugely popular among the Thai public, particularly among 
the millions of previously uninsured who had rarely made use 
of the health care system and often were plunged into heavy 
debt when catastrophic illness struck. 
 
¶3.    Over 48 million Thais are covered by the universal 
coverage (UC) system.  The Civil Servant benefit scheme and 
Social Security scheme cover much of the rest of Thailand's 
64 million citizens, with private insurance covering those 
who can afford it.  The UC system is paid for out of the 
general budget and administered by the semi-independent 
National Health Security Office (NHSO).  Hospitals receive a 
monthly transfer from the NHSO based on the number of 
registered beneficiaries in their area, multiplied by the 
"capitation rate", an amount the RTG determines annually 
based on NHSO's projections of health care costs required per 
person under the program.  For FY 2006 the rate was set at 
1659 baht (USD 44), with some adjustments for salaries and 
other factors.  The system is dominated by the country's 
public hospitals (few private hospitals chose to join), which 
are expected to manage their own books and cover their costs. 
 
¶4.    The lifeblood of the UC system is the capitation 
payments to hospitals.  At the outset of the UC program in 
2001, Ministry of Public Health (MoPH) analysts projected a 
capitation rate of 1200 baht would be sufficient to cover 
costs, basing their analysis on a 1996 survey that outlined 
costs and use of the health care system.  However, hospital 
visits boomed under the new program, and the NHSO quickly 
recognized that they had seriously underestimated the initial 
cost projections. 
 
¶5.     Although the RTG has steadily increased the capitation 
rate over the past few years, the annual increases are 
consistently below NHSO requests.  In what has become a 
recurring theme, NHSO recommendations for increases are 
mostly ignored as the RTG shows a strong preference for low 
end cost projections and lower capitation rates to ease 
budget pressure.  For FY 2005, NHSO calculated that a rate 
between 1732 and 1510 baht would be necessary to meet costs 
depending on a number of economic factors; the government 
instead offered 1396.  FY 2006 saw an increase to 1659 baht, 
though independent researchers felt the number should be 
closer to 2000 baht per head to meet hospital costs. 
 
Hospitals on life support 
------------------------- 
 
¶6.    The general consensus among health care analysts is 
that the UC program is underfunded as a whole and critically 
so in certain areas of the country.  Out of 800-odd public 
hospitals nationwide, approximately 200 are estimated to be 
operating in the red, mostly those in the relatively poorer 
Northeast region.  Financing reform early in the program 
focused on redistributing resources to deprived areas on a 
more equal basis, and under-staffed rural hospitals in highly 
populated areas benefited.  However, the budget allocation 
later changed in favor of larger hospitals, leaving some 
district hospitals with a smaller per capita budget than 
before the UC program.  The overall budget was insufficient 
to meet costs under the program, and within two years 
hospitals of all sizes were in deep debt.  A contingency fund 
of five billion baht (USD 120 million) was set up to bail out 
 
BANGKOK 00002747  002 OF 004 
 
 
hospitals with severe financial difficulty, but the fund was 
nearly exhausted after only one year. 
 
¶7.    The current discrepancy between total costs and the UC 
budget has narrowed, but hospitals say the budget is 
insufficient to maintain the level of quality of health care. 
 Hospitals complain that the annual increases in the 
capitation rate fail to keep up with inflation and rising 
health care costs, including doctor salaries and prices of 
medicines.   Despite the stresses put on the health care 
system, the UC system has yet to bankrupt a hospital and most 
are surviving if not thriving.  As Dr. Viroj Naranong, a 
health care researcher at the influential Trade and 
Development Research Institute (TDRI), put it, "they survived 
on 1396 baht, they'll survive on 1659."  NHSO has asked for 
2059 baht for FY 2007, an amount that if approved promises to 
reduce much of the financial handwringing. 
 
Thaksin the CEO manages costs 
----------------------------- 
 
¶8.    Dr. Viroj placed much of the blame for the underfunding 
on caretaker PM Thaksin.  After taking office Thaksin focused 
on maintaining economic growth and keeping taxes low, and 
forced the UC program to compete for funds like every other 
government program.  Says Viroj, "Thaksin didn't dispute the 
NHSO analysis on capitation rates, he just didn't have the 
money."  However, Viroj speculated that financial constraints 
were not the only reason for the underfunding and suggested 
that the MoPH deliberately set the capitation rate below 
actual costs in order to force cost-saving management reforms 
throughout the health care system. 
 
¶9.    Health care, and the UC system in particular, is an 
increasing share of the national budget, but analysts are 
confident the national budget can handle the extra weight of 
the UC program.  For FY 2006, the UC program will cost the 
RTG approximately 81 billion baht (USD 2.1 billion), 
approximately 5.5 percent of the national budget.  In an era 
of economic growth and increasing government revenues, TDRI's 
Dr. Viroj felt the RTG had the wherewithal to fully fund it. 
However, Viroj predicted that the government would wait until 
the program was in serious financial danger before coming to 
the rescue with more funds.  In a recent tiff between the 
Ministry of Public Health and TDRI, former TDRI President 
Ammar Siamwalla claimed the RTG had sufficient funds to fully 
fund the UC program but had chosen not to, and accused 
Thaksin of neglecting the UC program in favor of other 
spending more likely to earn votes in the most recent 
election. 
 
Putting hospitals on the road to recovery 
----------------------------------------- 
 
¶10.   Faced with shortfalls in operating budgets, hospitals 
are tightening up management and cutting back on immediate 
nonessentials, most notably capital investment.  For FY 
2006's capitation rate of 1659 baht, NHSO budgeted 100 baht 
for capital expenditure, but TDRI estimates hospitals are 
utilizing only 40 baht for this purpose.  A separate study by 
TDRI estimated that capital expenditures of 200-300 baht per 
head would be necessary to maintain an acceptable level of 
capital replacement and modernization.  Most hospitals have 
deployed other cost-saving strategies as well, using more 
generic and locally produced medicines instead of imported 
brand name drugs, trimming preventive medicine programs, 
overtime staff, and other non-medical care expenses.  More 
drastically, hospitals in serious financial trouble have 
found that reducing and refusing service to patients often 
brings a chorus of complaints to government officials and a 
quick infusion of funds from the central government. 
 
¶11.   Doctors at public hospitals have bridled at the extra 
workload brought in by the UC scheme and defections to 
private hospitals are common.  As it reduced the financial 
barrier to medical care, the UC program expanded the demand 
for health services.  Use of health care facilities rose by 
25% in the first two years of the program, 54% in district 
hospitals alone.  A 2003 poll of health care providers found 
that more than 70% of healthcare workers claimed that their 
workload increased due to the UC policy, a particular burden 
in district hospitals that were already understaffed. 
Discontent was furthered by widely diverse salaries between 
public and private hospitals.  Despite increased financial 
incentives for doctors working in public hospitals, including 
a 20,000 baht (USD 500) bonus for working in rural hospitals, 
NHSO's Dr. Pongpisut Jongudomsuk said MoPH's eventual goal 
 
BANGKOK 00002747  003 OF 004 
 
 
was to build public hospital salaries up to 80 percent of 
private hospital salaries.  The UC system has taken the blame 
for sparking an exodus of doctors to private hospitals, but 
Dr. Pongpisut noted that Thailand's improving economy enabled 
private hospitals to afford increasingly higher salaries that 
public hospitals could not match, a situation that would have 
existed without the UC program. 
 
¶12.   In addition to cutbacks, hospitals have met shortfalls 
by expanding revenue from other sources.  Dr. Vithit 
Artavatkun, director of Ban Phaew Hospital south of Bangkok, 
a hospital considered to be a success story for UC, told 
Econoff that although 80 percent of their patients used the 
UC program, only 30 percent of their revenue came from the UC 
budget.  To cover the gap, the hospital shifts some of its 
costs onto the more generous (and less regulated) civil 
servant scheme.  Patients looking for extras, such as private 
rooms, get to pay out of pocket.  Ban Phaew works on 
community involvement and pockets additional funds from local 
business and foundations that recognize the contribution the 
hospital makes to the community.  Ban Phaew and other 
hospitals with specialists and state-of-the-art technology in 
various treatments have advertised their specialties, 
attracting patients from outside their area willing to pay 
out of pocket for better care. 
 
Code Blue ) HIV/AIDS and kidney treatment could spike UC 
--------------------------------------------- ----------- 
 
¶13.   The future financial viability of the UC program will 
be tested by a recent RTG decision to place HIV/AIDS 
treatment under UC coverage, and plans to expand the system 
to include kidney transplant and dialysis as well.  In 
October 2005, MoPH committed to providing anti-retroviral 
treatment to all HIV positive patients who require it, 
approximately 80,000.  Although Thailand produces a cheap, 
generic anti-retroviral, the drug loses its effectiveness 
after a number of years and patients must move to more 
expensive second-line treatments.  As Thailand expands the 
life-saving treatment, the number of patients being treated 
yearly will only increase and costs could increase 
exponentially. 
 
¶14.   TDRI estimates that adding HIV and kidney treatment 
would necessitate a substantial increase in the capitation 
rate.  The current budget for HIV treatment is 2.7 billion 
baht for FY 2006, only about three percent of the UC budget, 
but an increase in HIV prevalence or a failure to lower costs 
of antiretrovirals could quickly increase that percentage. 
For now the MoPH is keeping a separate budget for HIV/AIDS 
treatment and will create another for kidney treatment, but 
NHSO says the split is more for psychological reasons, not 
wanting to appear to be swamping the UC system.   A pilot 
project for kidney dialysis is actually under budget, but 
primarily because there is a shortage of doctors qualified to 
provide the treatment. 
 
Financing options to put UC back on its feet 
-------------------------------------------- 
 
¶15.   Concerned that the UC program's funding through general 
revenues makes it vulnerable to competition for funds between 
ministries and political manipulation, UC advocates are 
seeking a stand alone financing mechanism to support the 
system.  The 30 baht co-pay is at the moment the only source 
of independent funds, but makes up only two percent of 
revenues for hospitals from the UC program.  NHSO staff are 
somewhat wistful that the UC program earned the moniker "30 
Baht program", making it that much more difficult to increase 
the level of co-payment. 
 
¶16.   A recent study by the International Health Policy 
Program (IHPP) recommended generating revenue for the UC 
program by raising "sin taxes", earmarking two-thirds of 
additional tobacco tax revenues and half an increase in 
excise tax on alcohol and beer.  TDRI's Dr. Viroj supported 
the idea of a separate fund, but questioned the wisdom of 
relying on revenue that fluctuates with economic conditions, 
noting that revenue from sin taxes dropped significantly 
during the 1997-8 financial crisis.  IHPP proposed also that 
the Social Security system, which relies on employer and 
employee contributions as well as government funds, be 
widened to include non-working spouses and dependents of SS 
recipients, taking six million people off the UC rolls.  IHPP 
also recommended that a premium on auto insurance be 
transferred to the NHSO to cover the over seven billion baht 
(USD 190 million) annual cost to the UC system to care for 
 
BANGKOK 00002747  004 OF 004 
 
 
victims of traffic accidents. 
 
Hospitals hurting, but patients feel better 
------------------------------------------- 
 
¶17.   Despite the numerous complaints about the 
administration of the UC program, nearly everyone in the 
health care field agrees that the program has been a boon to 
health care in Thailand.  WHO's local rep, Dr. William Aldis, 
pointed to improving infant and maternal mortality 
statistics, two of the best indicators of how well a health 
care system is functioning.  The use of smaller primary care 
units in the field (cheaper than tertiary care in hospitals) 
has improved health in rural areas by improving access.  The 
December 2004 tsunami that hit Thailand demonstrated the 
sturdiness of the system.  13,000 patients hit the health 
care system at the same time, many with massive head trauma 
and nasty fractures, yet the case fatality rate remained low 
and no hospitals broke under the strain. 
 
¶18.   A recent poll of healthcare professionals rated the 
quality of services provided to all patients as "good" or 
"very good", but they ranked the quality provided to UC 
beneficiaries lower than that provided to Social Security and 
Civil Service beneficiaries.  However, 85 percent of patients 
surveyed said they were satisfied with the medical services 
they received under the UC program, and 75 percent said their 
quality of life in terms of health had improved since the 
inception of the program in 2001.  Only one percent said it 
had worsened. 
 
¶19.   Comment:  The UC program is still identified with the 
ruling Thai Rak Thai party and Thaksin himself, but broad 
political support among diverse political parties and 
overwhelming popularity among the Thai public should ensure 
that the program will continue past Thaksin's tenure as PM. 
Like other similar systems, the 30-baht policy has stimulated 
demand while suppressing supply.  The dislocation and 
financial distress that the UC system brought to hospitals 
has been rough on many, but increasing demands for proper 
funding promises to put the program on surer footing.  The 
expanding costs of the UC program have taken a sizable chunk 
out of the national budget, but health officials recognize 
that the total health expenditure for Thailand (about four 
percent of GDP) needs to be raised.  They see growing 
expenditures not as a financial threat, but as a worthy 
investment in improving public health and believe that the 
time has come for Thai society to accept the necessary 
financial commitment.  End comment. 
BOYCE