Eastern Europe's public hospitals are in dire need of cash. As the region's countries have made the transition to a market economy, health care spending has plummeted despite a long-standing tradition of free, universal health care coverage (Exhibit 1). Hospitals, frequently the first victims of state budget cuts, are struggling to ease their financial crunch.

These hospitals have two powerful—though potentially controversial—means of generating new revenues while raising both the volume and the quality of their public care. The first is to make patients pay for certain elective services, the second to capture a share of the increasingly global market for clinical trials that multinational pharmaceutical companies sponsor.

We studied the potential advantages from taking this pragmatic approach in Serbia (including Montenegro), where per capita health care spending in 2000 had dropped to barely a fifth of the level it was in 1990. In particular, we looked at the treatment of cancer, a rather expensive area of health care. Numerous flyers in the areas near Serbia's public cancer-care centers advertise the wide range of diagnostic services, such as mammography and computerized-axial-tomography (CAT) scans, being offered at private clinics staffed largely by physicians moonlighting from the public service. These high-priced clinics exist throughout Eastern Europe—a testament to the long waiting lists in public health care. Furthermore, the pervasive practice of "informal payments" to doctors for faster and better care equals 5 to 30 percent of all health care spending in most countries in the region.

But these phenomena suggest a revenue opportunity for hospitals, too. Cancer-care centers have made only tentative attempts to offer paid services, mostly targeted at foreigners. If hospitals formalized, expanded, and rationally priced their menus of paid services, they could generate substantial revenues and recover some of the funds lost through informal payments to individual physicians. More fee-paid testing in hospitals would mean earlier diagnoses, which would also lower health care costs in the long term. Fee-paying patients would benefit because hospitals are more reliable than the largely unregulated private diagnostic outfits. And if fee-paid services were limited to elective diagnostic services and surgery conducted by doctors and nurses outside their normal work hours, care for nonpaying patients wouldn't be adversely affected; on the contrary, hospitals could invest the new revenues in equipment and medical staff. For one Serbian cancer-care center, we estimate that fees could generate—even after accounting for the extra staff and equipment costs—additional revenues equal to about 8 percent of its budget.

Public hospitals all over Eastern Europe must persuade governments to allow them to compete with one other and with private clinics to provide these paid services. Regulators must also be persuaded to change incentives in order to make it more profitable for doctors to offer treatment at their regular workplaces than at private clinics. Salaries in public hospitals are low, as are productivity bonuses—in Serbia no more than 30 percent of a doctor's salary.

Clinical trials, the second potential source of significant additional revenues, could also contribute to improving patient care and might reduce the cost of treatment as well. Multinational pharmaceutical companies are currently testing more than 400 cancer drugs, in trials requiring well over 100,000 patients. Increasingly, drugs are tested simultaneously in several countries, and almost all of those in Eastern Europe enforce the European Union's strict regulations for conducting clinical trials. In the United States, about 5 percent of adult cancer patients take part in such trials. A few countries in Eastern Europe—notably, Poland and Hungary—have made significant progress in attracting them, but in Serbia as well as most of the other countries in the region the participation rate is less than 1 percent.

Eastern Europe could be of particular interest to pharmaceutical companies that sponsor clinical trials,¹ because the incidence of previously untreated late-stage cancer is high, and large numbers of eligible patients are concentrated in a few cancer-care centers in each country (Serbia has 27,000 newly diagnosed cancer patients a year). Local clinical investigators are well trained and relatively inexpensive, usually speak good English, and benefit from the region's long tradition of purely scientific clinical trials. Moreover, clinical-trial work that in the West is typically performed by registered nurses is usually performed in Eastern Europe by specialist doctors.

The potential revenue is substantial: in Eastern Europe, hospitals and their clinical-trial teams could share income, based on competitive fees, of €1,000 to €3,000 ($1,120 to $3,370)² a patient, and extraordinary costs would be covered. We estimate that if just 5 percent of newly diagnosed patients at one of Serbia's public cancer-care centers were enrolled in sponsored commercial trials, this center, exploiting its current capacities, could increase its revenues from clinical trials as many as 60 times over, thereby adding an enormous amount to its annual budget of $10 million (Exhibit 2). Patients in clinical trials benefit from potentially lifesaving and otherwise unavailable cutting-edge treatments. A potential source of controversy can be removed by the increasingly prevalent sponsor practice of providing free treatment for patients after trials are completed.

For health care systems in transition, targeted patient fees and clinical trials are by no means a panacea but do offer public hospitals an effective way to relieve difficult financial conditions. Patients too will feel the benefit.