The leading pilot region for health finance reform in the Russian Federation has been adapting systems to changing economic circumstances since 1986. In 1992 a 'regulated competition' model was introduced and compulsory contributions are now routed to insurers via a central compensation fund. Hospitals are paid at standard rates (using 'clinical statistical groups') per case by diagnosis and procedure, and by outcome. Primary care is moving from fundholder polyclinics to general practitioners operating under incentives to efficient gatekeeping and provision of quality out-patient care. Private insurance co-exists for about five percent of the population, but the compulsory component is regulated through the central fund and only supplements are voluntary. The region has strong natural resources, but against a background of economic and environmental problems, a one-third increase on funding available to health over the pilot period is satisfactory, with costs of health insurance administration limited to three percent.