07MOSCOW1520, RUSSIAN DUMA: SPLIT HEALTH MINISTRY IN TWO

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Reference ID Created Released Classification Origin
07MOSCOW1520 2007-04-05 15:55 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Moscow

VZCZCXYZ0000
OO RUEHWEB

DE RUEHMO #1520/01 0951555
ZNY CCCCC ZZH
O 051555Z APR 07
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC IMMEDIATE 8950
INFO RUEHC/DEPT OF LABOR WASHDC PRIORITY
RUEHPH/CDC ATLANTA GA PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEAUSA/DEPT OF HHS WASHDC PRIORITY
RHEHAAA/WHITE HOUSE WASHDC PRIORITY

C O N F I D E N T I A L MOSCOW 001520 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR EUR/RUS AND OES/IHA 
HHS FOR OGHA/STEIGER, SAWYER, ESSIET-GIBSON 
COMMERCE FOR ITA/EDWARDS 
WHITE HOUSE FOR USTR/MOLNAR 
 
E.O. 12958: DECL: 04/04/2017 
TAGS: TBIO ETRD ECON SOCI PGOV PINR RS
SUBJECT: RUSSIAN DUMA: SPLIT HEALTH MINISTRY IN TWO 
 
REF: A. MOSCOW 976 
 
     B. 06 MOSCOW 12814 
     C. 06 MOSCOW 13072 
 
Classified By: EST Counselor Daniel J. O'Grady, Reasons 1.4(b,d). 
 
1. (C) SUMMARY:  The Duma April 4 unanimously approved a 
proposal to divide the Ministry of Health and Social 
Development into separate Ministries of Health Care and the 
Medical Industry and that of Labor and Social Development. 
Duma Deputies stopped short of calling on Minister Zurabov to 
resign.  Prime Minister Fradkov stated the Government would 
consider the proposal to split the Ministry, but President 
Putin would ultimately decide whether the structural reform 
made sense.  The proposal comes in the wake of the supply and 
financing problems with the government's free drug benefits 
program and other recent corruption scandals at insurance 
funds that the Ministry controls (REFTELs).  There are 
genuine supply disruptions under the drug program, and some 
U.S. and foreign firms have not been fully reimbursed for 
drugs they supplied in 2006.  With theoretically enough money 
available from the Ministry of Finance to fully fund the 
program, the latest proposal to split the Ministry appears to 
be the Duma's response to the considerable public discontent 
with how health programs are administered, as well as 
election-year politics aimed at appealing to voters who 
depend on the health and social programs administered by the 
Ministry.  END SUMMARY. 
 
Proposed Division of Ministry 
----------------------------- 
 
2. (SBU) On April 4 the State Duma unanimously adopted a 
proposal to PM Fradkov urging the division of the Ministry of 
Health and Social Development (MOHSD) into two separate 
cabinet-level ministries: a new Ministry for Health Care and 
the Medical Industry and a separate Ministry of Labor and 
Social Development.  The Duma stopped short of calling for 
Health and Social Development Minister Zurabov to resign. 
The Duma assessed the Ministry's work as "unsatisfactory," 
particularly in light of the ongoing supply disruptions and 
financing problems with the Government's drug benefits 
program (REFS A and B).  (The program is known as the "DLO" 
or the "Additional Drug Supply" in Russian.) 
 
3. (SBU) Duma Deputies clearly believe splitting the Ministry 
in two would not only improve management of the DLO, but also 
other health and social programs that the ministry 
administers, such as social insurance and pension programs. 
The Duma called for changes in the ministry's personnel to 
strengthen the management of these programs.  Deputies 
proposed establishing a Government program to stimulate 
domestic drug production, given the problems with the DLO and 
Russia's dependence on foreign drugs (REF A).  They urged 
tougher measures against counterfeit drug sales. 
 
4. (SBU) Prime Minister Fradkov was asked about the proposal 
to split the Ministry on April 5 while traveling in the 
Russian Far East.  He observed the Government would certainly 
consider the proposal, but that President Putin would make 
the ultimate decision.  (COMMENT: Not exactly a revelation. 
END COMMENT).  Some Duma Deputies and political observers 
have noted it is not within the Duma's constitutional powers 
to make proposals about the fundamental structure of 
ministries, or to suggest that individual ministers resign or 
be fired. 
 
Unwinding an Unhappy Marriage 
----------------------------- 
 
5. (C) Since its creation as a result of administrative 
reforms in March 2004, the MOHSD has been unwieldy.  Neither 
health nor social development bureaucrats were happy with the 
merger of the two previously independent Ministries of Health 
and of Labor and Social Protection.  MOHSD's main 
beneficiaries (the chronically sick, pensioners, veterans, 
the working poor, and the unemployed) have also often been 
dissatisfied with the mismanagement of the DLO, attempts at 
pension reform, and monetization of benefits (Reftels).  The 
MOHSD has been widely seen as unmanageable, with supervision 
over six separate health and social agencies and federal 
services, and three separate insurance and pension funds. 
Recent corruption scandals at insurance funds administered by 
the ministry and the management missteps with the DLO program 
(Refs A, B) have only confirmed this prevailing view. 
 
Health Minister's Defense Before the Duma 
----------------------------------------- 
 
6. (C) The appearance of the perennially unpopular Minister 
Zurabov before the Duma on March 23 to propose solutions to 
the DLO problems was pure political theater.  One Deputy &#x00
0A;called on Zurabov to take his service pistol and shoot 
himself, and another asked rhetorically when Zurabov intended 
to keep his earlier promises to resign at the first sign of 
trouble with the DLO program.  A skilled debater, Zurabov 
ably defended himself, essentially telling the Duma the issue 
of his resignation was a red herring that would not improve 
the situation with the DLO program.  Instead, he proposed 
fully paying off the deficit spending under the program in 
2006 and fully funding it in 2007.  Zurabov and the United 
Russia Party also proposed creating a separately funded 
program for those requiring long-term or expensive medicines 
(e.g., diabetics, hemophiliacs, and those suffering from 
blood cancers or multiple sclerosis), which would cost an 
additional 20-25 billion rubles per year. 
 
7. (SBU) Zurabov noted that problems with financing the DLO 
originated when more people than expected opted to monetize 
their benefits in 2006, and those who remained in the program 
overburdened the system by obtaining expensive drugs.  Over 
the long-term, Zurabov argued that greater funding for 
Russia's health care system was necessary, and, in 
particular, the Federal Government's funding of the DLO 
program would have to be supplemented in future years by 
contributions from private insurance companies and regional 
governments. 
 
Some U.S. Drug Firms Remain Unpaid for 2006 Sales 
--------------------------------------------- ---- 
 
8. (C) The DLO's financing is having a negative impact on 
some U.S. and foreign pharmaceutical companies.  A 
substantial portion of certain U.S. drug companies' total 
sales to Russia in 2006 were under the DLO, and they are 
holding significant overdue accounts receivable that the 
government has yet to pay.  Eli Lilly, one of Russia's 
largest suppliers of insulin to diabetics (diabetics comprise 
one of the biggest categories of DLO beneficiaries), has been 
in months-long negotiations with the GOR and agreed to write 
off some of the debt.  We believe Lilly is still owed tens of 
millions of dollars for drugs supplied under the program, but 
the company would not provide us with an approximate dollar 
figure.  Likewise, Schering Plough, a big supplier of birth 
control and anti-cancer drugs under the DLO, is still waiting 
to be reimbursed for some of its sales.  Janssen-Cilag (a 
wholly-owned European subsidiary of Johnson and Johnson) sold 
82 percent of its total drugs in Russia through the DLO. 
 
9. (C) Other U.S. firms have little exposure to the financial 
difficulties of the program, either because they were more 
cautious and chose not to supply drugs through the DLO, or 
the mix of their products happened not to fall within the 
list of drugs available under the program.  Merck suspected 
early on that the program was underfunded and chose not to 
supply drugs under it in 2006.  Pfizer's main drugs were 
excluded from the 2006 list of drugs available under the DLO. 
 Abbott Labs told us their outstanding receivables under the 
program are also minor. 
 
10. (C) Some other major foreign firms do face major 
exposure.  Swiss drugmaker F. Hoffman La Roche supplies heart 
medications, anti-cancer drugs, and immuno-suppressors. 
According to our sources, it is still owed at least $70 
million for 2006 sales.  Over 75 percent of Novartis' sales 
and nearly half of Sanofi-Aventis' sales in Russia were under 
the DLO during 2006. 
 
Comment 
------- 
 
11. (C) Duma Speaker Gryzlov told the press April 5 Zurabov 
would ultimately be fired, but would not specify when. 
Still, he emphasized that he knows what he is talking about. 
Contacts at both Transparency International and Russian 
anti-corruption NGO INDEM told us Zurabov's days are indeed 
numbered and that the Presidential Administration is waiting 
for the perfect election-year moment to make a "supreme 
example" of him.  Speculation about when Zurabov will be 
fired has been circulating for months (REFS A and B).  The 
proposed split of the ministry may be designed to chasten 
Zurabov, or, if implemented, take him down a peg.  Human 
Rights Ombudsman Lukin's recent annual human rights report 
identifies health care as one of the chief sources of 
complaints from citizens.  The Duma is responding to the 
considerable discontent with the way health programs are 
being administered. 
 
12. (C) COMMENT (CONT.): Election-year politics may also be 
lurking behind all of the public scrutiny of the MOHSD and 
the DLO program.  While there are still shortages of drugs in 
some regions and long waiting lists for many prescriptions to 
be filled, there seems little doubt that the Ministry of 
Finance could fully pay off the 2006 debts to drug companies, 
fully fund the program in 2007, and finance a separate 
program for those requiring expensive medicines.  The 
proposal to split the ministry may be aimed at convincing 
voters that the United Russia party is genuinely concerned 
about both health and social issues, and is interested in 
swaying constituents dependent on MOHSD programs, who may be 
leaning towards voting against the governing United Russia 
party. 
BURNS

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