The five Western Balkan countries – Albania, Bosnia and Herzegovina, the Former Yugoslav
Republic (FYR) of Macedonia, Montenegro, and Serbia – and the province of KosovoF
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undergone significant transitions in the past decade or two, which have been complicated by a
series of regional conflicts. After an initial phase focused on macroeconomic stabilization and
reconstruction, reforms are now focusing on enhancing economic growth, promoting employment
generation, and encouraging the containment and efficiency of public spending. The countries’
shared aspiration to join the European Union (EU) exerts an important influence on policy
decisions.
In the health sector, the main challenge is to continue to make progress towards achieving health
system objectives, namely improving population health status and providing protection against
the financial costs of illness, while ensuring the financial sustainability of the health sector.
This paper explores the major challenges to the sustainability of health sector financing in the
Western Balkans, both on the revenue and the expenditure side, and identifies measures that can
be taken to enhance it. It focuses on those elements that are endogenous to the healthcare
financing system and that are amenable to improvement through government-led reforms, rather
than exogenous elements such as demographic change and fiscal pressures. In so doing it
examines the incentives created by the different elements of the healthcare financing system
(such as the revenue collection system and the provider payment mechanism) and the effect that
these incentives have on the behavior of healthcare providers, firms, and individuals, and the
resultant inefficiencies. The central thesis is that, although countries in the Western Balkans have
succeeded in containing the growth in public expenditure on health during the past few years, in
future more efficient management of revenue collection and spending will be needed if countries
are to steer their health systems towards attaining their objectives, while meeting the obligation of
fiscal sustainability.
The structure of the paper is as follows: After describing the geographical scope of the analysis
and the limitations of the data, the main patterns and historical trends in the sources of health care
financing are presented, and the key challenges that the health systems face in ensuring sufficient
revenue generation are discussed. Then, current and past expenditure patterns are described and
the effects of the structure of the healthcare financing system on the magnitude and efficiency of health expenditures are explored. The paper concludes by summarizing some of the key health
sector reforms that countries in the Western Balkans could consider in order to enhance the
effectiveness and sustainability of their health systems.