PRIVATISATION OF HEALTH CARE IN EUROPE

Transcription

1 PRIVATISATION OF HEALTH CARE IN EUROPE Christine André & Christoph Hermann 1 1 CNRS, Paris and FORBA (Working Life Research Centre), Vienna. 1

2 Contents 1. The evolution and role of public health care in Europe 1.1 Two basic health care models 1.2 The role of the state 1.3 Health as a public good 2. Drivers of health care restructuring 2.1 Increase in health care spending 2.2 Budgetary constraints 2.3 Private capital 2.4 Arguments for privatisation 3. Forms of privatisation, liberalisation and economisation 3.1 Macro-level changes in the health care financing 3.2 Mirco-level changes in the health care financing The British NHS Trusts DRG The UK Private Finance Initiative 4. Changes in the provision of health care 4.1 Hospital closures 4.2 Hospital privatisation 4.3 New private hospitals 4.4 Internal market, outsourcing, PPPs 5. The Emergence of European Health Care Multinationals 6. The Role of the European Union 2

3 1. The evolution and role of public health care in Europe The financing and provision of health care in Europe has always involved a variety of institutions and actors some of whom were public and others were private. The situation is all the more complex as, in several European countries, private health services can either be provided for-profit or not-for-profit. However, what makes health care a traditional public service and what distinguish (western) Europe from the United States are the compulsory character of the insurance system, the subordinated role of private for-profit insurers and the crucial role of the state in planning and overseeing the system. In the United States, in contrast, almost 15 percent of the population lack any health insurance and almost 75 percent of those insured are covered by a voluntary private insurance mostly attached to their workplaces (Mills/Bhandari 2003; Katz 2001:266ff). 1.1 Two basic health care models The compulsory character of the European health care system has two different roots and hence takes two basic forms, which in reality, however, can rarely bee seen in pure form (Freeman 2000:17ff): The Bismarckian model, which dates back to the nineteenth century, is mainly based on a public social health insurance for wage-earners (mandatory contributions deducted from salaries and mainly paid into public funds), even if the coverage is now extended to other categories (Saltman/Dubois 2004:23-4). In the Beveridgian model, health care costs are paid from taxes and health care services are provided by a national health service covering the entire population, making it an integrated public financing and delivery model. The Bismarckian model prevails in Continental Europe, while Britain, the Nordic countries and some Southern European nations have chosen the tax-based solution for financing health care. In both systems there is some form of redistribution of costs. In the social health insurance system the contributions are proportional to the income of the insured persons, which means that those with more income pay higher fees (in some countries up to a maximum contribution rate). As high-income earners are paying higher income taxes, they are also shouldering a higher share of costs in the tax-based model. 1.2 The role of the state Although voluntary forms of health insurance reach back to the eighteenth century, in both cases it was the state which played a critical role in expanding the proportion of the population who has access to health treatment although some health insurance funds in Continental Europe are still administered by non-governmental organisations. During the second half of the twentieth century, European states have perpetually expanded their responsibility for the health sector through a variety of measures, including the planning of supply, the funding of research and innovation, the regulation and training of medical professions, the establishment and control of medical standards and, not least, the extension of health care funding (Moran 1999; Freeman/Moran 2000). As Hans Maarse (2006:982) notes, [m]ore or less as a universal trend, health care throughout Europe entered into what may be 3

4 called the public domain. A by-product of this development was the rollback of the private sector in healthcare spending and, in some countries, health care provision. (italics in original; see also Freeman 2000:29.) In 1980 private health insurance across the EU-12 on average accounted only for 3.4% of total health financing. Even in the Netherlands, which was the country with the highest proportion of private health financing in this sample, the share did not exceed 11% (André 2007:6). Public health care spending increased continuously during the post-war years. This was, however, not perceived as a problem as long as the economic growth was sustained. The state not only played an important role in the financing but also in the provision of health care. In all countries part of the hospital sector was in public hands, often run by local or regional governments. In countries with a tax-based funding system the hospital sector was essentially public (Maarse 2006:983). 2 Countries following the Bismarckian model, in contrast, traditionally had a large private but not-for-profit sector, often consisting of confessional hospitals (in some countries, such as the Netherlands, even the majority of hospitals are private not-for-profit). In these countries private for-profit hospitals have existed besides public and private not-for-profit ones but they never played a dominant role Health as a public good Several reasons combine for explaining why all European health systems became mostly public. Even if the history is different in each country, it can be mentioned that the rapidly growing urbanization during the 19th century, associated with industrialization, led to huge hygiene and epidemic problems that could be treated only at a public level, and that this often constituted a big turn in the development of a public health policy. Another important factor of the development of a public health policy is associated with a more general change of social policy (creation of insurance for accidents du travail, pension, etc.), as this period is associated with the origin of welfare states, a radically new phase for social systems mainly engendrée by social and political tensions. Then technical progress, from this period, also played a major role in the increase of health costs. - Health care does not function according to market principles: Perhaps the most important reason of health care being a public good is that health care does not function according to regular market principles. - Information asymmetry: Citizens in need for health care are not in a position to act rationally, assess risks and select between different treatments unless they are medical specialists. Although patient rights and information have been improved in recent years and 2 In Britain the creation of the National Health Service (NHS) entailed the nationalisation of 2,688 hospitals with 480,000 beds (Rivett 1998). Nationalisation was not least the result of the inadequate provision of health care in the pre-war years. 3 Even in France, which is the country with the strongest tradition of private hospitals after 1945, only a minority of hospital care was private for-profit. Not to mention that all hospitals including those privately owned were under heavy state-control. (Rochaix/Wilsford 2005:99; Maarse 2006:985). 4

5 patients may consult different physicians in the end most patients rely on their doctor s decision. - Health as public good: As some diseases are infectious, the public has a strong interest that all members of society are healthy in order to minimize the risk of being infected. If the society has invested in schooling and education of its members there is also a strong interest that members do not become to ill to work. - Planning vs. market: Following market principles supply is offered where there is sufficient monetary demand. Low populated areas and areas with poor populations very likely do not generate enough monetary demand and are therefore excluded from health services. On the other hand health statistics show that the poor are more likely to become ill and are therefore more in need than the rich. Health care planning can be used to balance these inequalities. - Discontinuity of supply and demand: While the market may provide health services for a certain demand it does not provide sufficient capacity for unforeseeable events such as epidemics (and it takes some time to build up capacity in health care services). - Prevention as most effective form of health care: Preventive care is not only the most effective but also the cheapest method of fighting health problems. Although regular health checks generates income for doctors, but early diagnosis can at the same time foreclose the possibility to make higher profits at a later stage through more complex and expensive treatment. In the same way, selling drugs can be more profitable then seeing a doctor. - Health care as human right: Apart from economic considerations, there are also strong moral arguments why health systems should be public. One is that human beings should not die because they lack the necessary financial resources. This not only implies that patients are not turned away but also that they receive high-quality treatment regardless of their income. In summary health is a public good and not a commodity, and health care cannot function according to market principles. The state resumes a crucial role in planning and managing the health care sector. By doing so, the state is not only expected to make sure that people have access to health services, in particular poor people and rural areas, but also that doctors and other medical professional are sufficiently trained, have the appropriate technical equipment and sufficient resources to meet their professional aspirations. 2. Drivers of health care restructuring 2.1 Increase in health care spending Technological and organisational innovations, decentralisation, the need for new skills and qualifications, as well as a growing awareness for patient rights and the extension of the coverage of population, certainly played a role in the restructuring of the health care sector in the past three decades, but the most important driver of change was the objective of cost containment. All European countries experienced difficulties to cover increasing health care costs after the end of the long postwar boom in the 1970s. With the economic recession, the acceleration of health care costs caused by increasingly expensive equipment and medication 5

6 as well as growing needs of the population, surpassed the growth of GDP with the effect that with the exception of some years in the 1980s when spending actually decreased an ever larger proportion of public budgets had to be spent on health care (André 2007:4). Table 1: Total health spending in % of GDP CC: Belgium e Netherlands Germany France Austria NC: Denmark e Sweden Finland ASC: Unit.Kingd d Ireland b SC: Italy Spain e Portugal b 10.2 e Greece CEEC: Hungary 6.9 Poland e Czech R b 7.2 Slovak R Empty box : data not available. -Abbreviations : CC : Continental countries ; NC : Nordic countries ; ASC ; Anglo-Saxon countries ; SC : Southern countries ; CEEC : Central and Eastern European countries. -Notes : b : break in series ; e : estimate ; d : differences in methodology. -Source : OECD Health Data 2007 Yet health care spending did not develop equally accross European countries. If we group countries according to the well-known welfare state typology, each one of the five clusters has its specificities. Following political change and economic schocks in the early 1990s, the ratio of health care spending in the new members stattes in CEE is still significantly lower than in the other countries. In the Anglo-Saxon countries, on the other hand, the ratio is lower than in the other Western European countries. With the exception of Finland, spending increased only marginally in the Nordic countries and even decreased for most of the 1980s and 90s before it started to increase again after the turn of the century. And while the Southern European Countries have seen the strongest increase in spending mostly due to a catch-up effect, Continental European Countries have the highest level of spending. 2.2 Budgetary constraints In several countries the slow down of the economic growth from the mid-1970s was followed by changes in government. The neo-conservative parties that came to power at several times 4 In all the tables, countries are ranked depending on traditional clusters of the welfare state. 6

7 promised tax-cuts to their voters. This was part of a new neoliberal agenda which was aiming at a roll back of the state in favour of private initiative and capital. The prime example was Margaret Thatcher in Britain. But more moderate forms of economic austerity were also introduced in other European countries. Economic austerity became in fact one of the major goals of the European Union and especially of the member states that have joined the Growth and Stability Pact (Hermann 2007). This Pact limits the yearly budget deficit to a maximum of three percent of GDP. The combination of tax-cuts and of budgetary austerity not surprisingly resulted in a financial crisis of public health care systems. This not only concerned systems financed by taxes, but also systems financed by social contributions. In the latter case, hospital infrastructure is often funded by local or regional governments while costs for treatment are covered by the insurance funds. In federal systems such as Germany, it is the municipalities which are the weakest link in the chain and feel the strongest pressure to cut costs. However, also insurance funds are under pressure to cut costs as stagnating wages and new atypical forms of employment with no or low insurance contributions constraint their financial resources. As they are proportional to the level of income they, contributions suffer from a two-decade long decrease of the wage rate. 5 Moreover, the financing constraint has played a major role in some convergence of health spending in EU-14 (i.e. EU-15 less Luxemburg) during the period , which is confirmed by econometric analysis (André 2007). This analysis also shows that a turn in the growth of health spending took place at the beginning of the 1990s, which can be associated with the role of the Maastricht constraints. 2.3 Private capital Apart from the financial crisis, a second major driver of change is due to the growing profits expected from the health sector by the multinational health care companies and pharmaceutical and medical equipment firms, in a context where a huge amount of financial assets are waiting to be invested profitably. Despite the crisis of public budgets and costcontainment efforts, the health care sector is expected to grow in the future (Lethbridge 2004; Hall 2003). Moreover, what makes the health care sector particularly interesting for private investors is that health business is non-cyclical. Other sectors may be suffering from a decline in demand but patients need medical treatments regardless of the world economic outlook. This makes the health sector a comparatively safe territory for investments. The increasing importance of health care as a profitable sector for investments can also be seen in the fact that it became a prominent issue in WTO talks about a General Agreement on Trade and Services (Sexton 2003; Mosebach 2003). 2.4 Arguments for privatisation There are a number of arguments for extending the role of private actors and private business principles in the healh care sector. 5 The wage rate is the relation of wages to GDP. 7

8 - Perhaps the most popular argument assumes higher efficiency and better quality of private health care institutions (Maarse 2006:1003). It is out of question that management and work organisation in public hospitals are far from perfect. However, major cost advantages of private providers are mainly due to a backlog in infrastructure investments in public hospitals as well as wage structures that advantages physicians and the higher qualified nurses but disatvantages the bulk of lower qualified hospital workers. Private sector cost advantages also stem from a higher degree of standardisation, division of labour and from outsourcing including outsourcing of training as doctors and nurses are lured away from public institutions. In connection with standardisation there is also a higher degree of specialisation in certain relatively simple treatments where economies of scale can fully be exploited. While there is no clear evidence for greater efficiency of private hospitals, comparisons between the UK and the US indicate that private hospitals tend to have higher adminstration costs than their public counterparts. - A similar argumentation says that public hospitals can profit from private sector management experience and from cost reductions through outsourcing to cheaper private providers. While it is true that private cleaning services are cheaper because they pay their employees lower wages, the public sector itself has ample experience in running hospitals. Exchange takes place through managers who are changing jobs but so far it is not known that a private hospital would have proposed to outsource management to a public competitor. - Another argument is the beneficial impact of competition in the health care sector. This concerns not only hospitals and outpatient care in countries where patients so far were not allowed to choose their doctors and hospitals, but also insurance providers. Competition, so the assumption, forces them to improve their insurance packages through lower fees and wider coverage.yet comparisons between public and private health insurance schemes show that private insurances have larger costs for administration and advertising, which makes it highly unlikely that they provide more coverage at lower premiums (see table 2). Table 2: A comparison of administrative costs among voluntary and statutory insurers, 1999 Country Voluntary (% of premium income) Statutory (% of public expenditure on health) CC: Belgium 25.8% (commercial individual) 26.8% (commercial group) 4.8% Netherlands Germany France 12.7% 10.2% 10-15% (mutuals) 4.4% 5.09% (2000) 4-8% 15-25% (commercial) 22% (early 1990s) 3.6% (2000) Austria ASC: United Kingdom Ireland SC: Italy Spain Portugal Greece About 15% 11.8% (Vhi Healthcare 2001) 5.4% (Vhi Healthcare 1997) 27.8% (2000) About 13-15% About 25% 15-18% (commercial life insurance) 3.5% (1995) 2.8% (1995) 0.4% (1995) 5.0% - 5.1% Source: (Mossialos and Thomson) Abbreviations : CC : Continental countries ; ASC ; Anglo-Saxon countries ; SC : Southern countries. 8

9 - Others again have argued that greater involvement of the private businesses in the financing of health care allows the public to make the private sector bear some of the risks involved in planning a public health care system. This argument is particularly popular among those promoting Public Private Partnerships (PPP) and Private Finance Initiatives (PFI) (see below). In the latter case, the infrastructure and maintenance services of entire hospitals are financed by private investors and then leased to the public hospital providers in a 30-years or longer contract. Yet critics have difficulties to see a real transfer of risk given the long duration of the PFI contracts. On the contrary, the existence of long-term contracts makes it even more difficult for the public health service to respond to short-term changes. 3. Forms of privatisation, liberalisation and economisation Privatisation reveals to be a very blurred concept when looking at the health sector as what is private can be associated with a large range of different types of organisation and what is privatisation can be associated with different processes. Indeed, though some health organisations can be considered as purely public or purely private, a lot of health organisations can rather be associated with some mix of public/private elements 6. So, when examining the health system, it seems appropriate to break it down into the main elements which take part in its characterization. The main elements which characterize the public sector and the private sector are relative to: -the actors. In the public sector, the actors are the different level of administrative authorities and special health authorities. In the private sector, the actors are the private for-profit and not-for profit organisations, and, for being exhaustive, it would be necessary to take also into account the domestic sphere (family). In this paper, we only treat of for-profit and not-for profit organisations 7. -the type of decisions about the structure of health systems. It is the State (not only the central State but, sometimes, several of the public actors) which takes the decisions about the characteristics of health care and health insurance systems. -the type of financing. In the public sector, taxes, social contributions finance the health system. Tax expenditure may also contribute financing public and/or private sectors. In the private sector, spending is financed by premia (and contributions) paid by the insured persons and/or the employers, and by out-of-pocket payments. -the type of insurer and the type of insurance. The public sector mainly corresponds to the basic, compulsory insurance. Sometimes it can also provides a complementary and/or voluntary insurance. Private insurance may take four forms: substitutive (primary, for people without access to public health cover), duplicate (primary, offering a private alternative to public health cover), complementary (for the part not covered by public health insurance), supplementary (for care not covered by public health insurance). Private insurance is most often voluntary but it may be compulsory (in some cases where it proposes a primary cover). 6 An example of the growing importance attributed to such a mix by the economic literature can be seen in the use, from the 1980s onwards, of the concepts of welfare pluralism or of an enabling state in articles dealing with propositions about the way welfare could be provided in the future (Gilbert), (Johnson). 7 In certain cases where there is no or only few and insufficient public services, the state may give some compensatory benefits for people who give care to their family. This may particularly be the case for child care and for disability and long-term care. 9

10 -the type of care provider 8 The public sector provides ambulatory care (sometimes only for a small part) and, in all the cases, part of the hospitals are public. The private sector is present in these two components of health care system. -the owner of building. The category of owner of building adds to the complexity of the issue of privatisation, in Sweden for instance. Privatisation may be defined as corresponding to changes of all or part of the corresponding criteria from the public sector to the private sector. This allows a lot of processes for partially privatizing, and there rather seems to be a kind of continuum between two poles which could be defined as completely public and completely private. There is not a clear dividing line between public and private interests within the health sector as crossassociations can be made in a wide variety of ways. For instance: public financing can finance the private sector, private financing can finance the public sector; contracts can be signed between public authorities (regions, insurance funds, etc.) and private providers, contracts can be signed between public hospitals and private clinics; private practice may be developed in public hospitals, etc. Moreover, the State may decide to make compulsory some insurance but the organisations which supply the corresponding benefits may be private. The main processes of privatisation are: -deregulation (for instance mutual funds may be given possibilities of widening their field of intervention, public insurance may be authorized to reimburse private care, etc.), -contracting out, when public services decide to contract with private organisations for auxiliary or medical services, -implementation of private organisations: for instance due to tax incentives or spontaneously but, in this case, this may be due to the fact that government has decided to control the growth of public care providers or of public insurance, which is a passive incentive to privatisation; the creation of private organisations may also result from new opportunities to develop for a wide range of reasons, -increase of cost-sharing and of out-of-pocket payments. A problem arises when a not-for-profit organisation switches towards profit-making. This could be defined as commercialisation rather than privatisation, but this issue is somewhat ambiguous (Kuptsch). Major changes of health systems have also occurred under other forms than privatisation: the introduction and development, within the public sector, of market mechanisms/competition, and the changes of mode of governance which have been recently introduced in public systems. Though market mechanisms/competition in the management of public organisations is not privatizing, nevertheless some people consider that it might be a first step towards privatisation as, very often, this is done with aims often associated with privatisation, i.e. controlling public spending and improving efficiency. Changes of mode of governance do not consist in introducing more competition but they often consist in introducing a relatively hard financing constraint for the public organisations that they are obliged to respect while they are given more autonomy in their decisions. Sometimes these public organisations get even the right to raise financial resources. Again, a lot of intermediary cases are present. 8 The organisations of insurance and of care are presented in separate paragraphs as they evolve in an independent way. 10

11 The market meachanisms introduced within the public sector are: -freedom of choice given to public health authorities: for purchasing services, especially by contracting out: for instance regional and local authorities purchase services to the private not-for-profit sector (more exceptionally: to the private for-profit), hospitals contract with the private sector for auxiliary and sometimes medical services, etc. - freedom of choice given to patients: free choice by patients of a public insurance fund (when they had no choice before), or even of a public or private insurance fund; free choice by patients of their general practitioner; vouchers. Introduction of market mechanisms/competition in the public sector may pass by the development of possibilities given to public organisations for purchasing private health services competing with public services, and by a new freedom given to patients for choosing their insurance fund and their care provider (moreover, vouchers have been implemented in some countries). Changes of mode of governance within the public sector are associated with: -new types of financing: global budgets (hospitals, physicians, drugs); DRG (diagnosis related groups) financing; activity-based financing; (capitation instead of fee-for-service for medical professionals.), -new types of management: participation of private actors to the management of public organisations (for instance regimes and unions of professionals), creation of a gatekeeper system, networks in the ambulatory sector, -transformation of the status of public hospitals into private law companies, -freedom to levy their own taxes given to public health authorities (in particular to public local authorities). Some elements have also been recently introduced which contribute to increase competition in the private sector. They are: free choice by patients of their insurance funds; free choice by patients of their care providers; the fact that insurers purchase medical service; the fact that regional and local authorities purchase services to the private sector. Measures other than privatisation and liberalisation have also been used during the last twenty-five years. In particular, decentralisation has been sometimes viewed as a tool for increasing efficiency and, so, as a kind of possible substitute for privatisation, as a way to switch the financing from the central State to regional and local levels, and as a mean to secure better allocation of resources according to needs. Decentralisation can take several forms: delegation (transfer of responsibilities to a lower organisational level), deconcentration (to a lower administrative level), and devolution (to a lower political level) (Bankauskaite and Saltman) (Polton) (Saltman et al., 2006). A particular feature of the health care sector is the complex character of this transformation as it includes both changes in the way health care is financed and changes focussing on the provision of health services. In the remainder of the section we will therefore describe successive changes in health care financing, both on a macro- and on a micro-level, and in the provision of health care. 3.1 Macro-level changes in the health care financing 11

12 While total health care spending has tended to increase in the 1990s (see table 1), after a temporary slowdown in the 1980s, the proportion of public health care expenditure as percentage of total health expenditure has generally decreased although not in a consistent way (see table 3). The exceptions are Austria and Portugal where public spending as proportion of total speding has actually increased between 1980 and In 2005, this ratio varies between 42.8% in Greece, and 84-89% in Sweden, the UK, and the Czech Republic. Among those countries with the strongest reductions of the share of public spending are Sweden, Greece, and the new member states in CEE (André 2007). Table 3: Public health spending Public health spending in % of GDP Public health spending in % of total health spending CC: Belgium e e Netherlands Germany France Austria NC: Denmark e e Sweden Finland ASC: Unit.Kingd d d Ireland b b SC: Italy Spain e e Portugal b 7.4 e b 72.7 e Greece b 42.8 CEEC: Hungary Poland e e Czech R b b 88.6 Slovak R Empty box : data not available. -Abbreviations : CC : Continental countries ; NC : Nordic countries ; ASC ; Anglo-Saxon countries ; SC : Southern countries ; CEEC : Central and Eastern European countries. -Notes : b : break in series ; e : estimate ; d : differences in methodology. -Source : OECD Health Data 2007 The relative decrease of public health care spending went hand in hand with an increasing importance of private health insurance companies and of out-of pocket payments in the financing of health care costs. Today private health insurances 9 are particularly important in the Netherlands where their share in total health financing reached 15.9 percent in 2000 (see table 4), followed by France (12.5 percent in 2005) and Germany (9.2 percent). 9 When all other private funds are take into account, the ranking is not much modified but the share of such funds may be relatively important, particularly in Poland. 12

13 Table 4: Structure of the financing of health care systems in Europe General government (excluding social security) Social security schemes Out-of-pocket payments CC: Belgium 4.2 e Netherlands Germany France Austria NC: Denmark e e Sweden Finland ASC: Unit. Kingd Ireland SC: Italy Spain e e e Portugal e e e Greece CEEC: Hungary Poland e e e Czech R b b b 10.9 Slovak R Private insurance and all other private funds of which: Private insurance of which: All other private funds CC: Belgium Netherlands Germany France Austria NC: Denmark e 0.1 e Sweden Finland ASC: Unit. Kingd Ireland SC: Italy Spain e e e Portugal b 3.8 e 2.2 b 1.3 e Greece CEEC: Hungary Poland 4.6e 0.6 e 4.0 e Czech R Slovak R Empty box : data not available. -Abbreviations : CC : Continental countries ; NC : Nordic countries ; ASC ; Anglo-Saxon countries ; SC : Southern countries ; CEEC : Central and Eastern European countries. -Notes : b : break in series ; e : estimate ; d : differences in methodology. -Source : OECD Health Data

14 The population covered by private health insurance varies in the European countries but is generally larger in these Bismarckian systems (ibid). Some of these systems exclude certain groups which are then dependent on private insurance; or they give certain groups the possibility to choose between a public or private insurance (Wasem et al. 2004:227). In these cases, private insurance function as substitute for public health insurance (Mossialos/Thomson 2004). However, more often than substituting for public health insurance, private insurance schemes are complementary and supplementary to the public system. Complementary insurances cover for services excluded from or not fully covered by the public system or for co-payments; supplementary insurances pay for faster access or increased choice (ibid.). The diffusion of substitutive health insurances is still limited in Europe. Substantial levels of coverage only exist in the Netherlands (24.7 percent), Germany (9 percent) and Belgium (7.1 percent). And while supplementary insurances are also rather insignificant except for Portugal (12 percent), the UK (11.5 percent), Greece (10 percent) and some categories in Finland (young people), complementary insurance schemes play an increasingly important role in a number of EU countries including France (85 percent), the Netherlands (more than 60 percent), Belgium (30-50 percent) and Ireland (45 percent) (ibid. 34). Other characteristic features of the expansion of private health insurances across Europe are the fact that they are more often purchased for a group of people such as the employees of a particular company than individually, and that a number of countries offer substantial tax benefits to private health insurance holders. Table 5: Levels of VHI coverage as a percentage of the total population, 2000 or latest available year Country Substitutive Complementary Supplementary CC: Belgium Netherlands* Germany* France** Austria* 7.1% 24.7% (+4.2% WTZ) 9% Marginal (frontier workers) 0.2% 30-50% >60% 9% (mainly) 85% (2000 estimate 94%) 18.8% (inpatient 12.9%) Marginal NC: Denmark* Sweden* Finland*** None None None 28% None 1.0%-1.5% Children<7: 34.8% Children 7-17: 25.7% Adults: 6.7% 11.5% ASC: United Kingdom Ireland None None 45% SC: Italy* None 15.6% Spain* 0.6% 11.4% Portugal** None 12% Greece None 10% * 1999; ** 1998; ***1996 Source: (Mossialos and Thomson) Abbreviations : CC : Continental countries ; NC : Nordic countries ; ASC ; Anglo-Saxon countries ; SC : Southern countries.. The growing importance of complementary health insurance in Europe is largely due to another important trend: the delisting or the lowering of the reimbursement of treatments and medication that are funded by public health insurance. A classical case in all countries is dental care which is financed to a large extent by complementary private insurances or out-ofpocket payments by patients. 14

15 The increase in out-of-pocket payments can be observed in many European health care systems (see table 4) and is more important for the decrease of public spending as proportion of total health care spending than the growth of private insurances. Out-of-pocket payments include direct payments (payments for goods and services that are not covered by insurance), co-payments (insured patients are required to cover parts of the costs for treatment and medication; this is also referred to as user charges) and informal payments for preferential treatment (André 2007:48; Jemiai et al. 2004). In Poland, for instance, patients pay tokens of gratitude for preferential treatment in public hospitals (Kozek 2006:1). Although the introduction of co-payments is a general trend, the amount of money that patients are required to pay privately varies significantly across the EU member states. According to OECD, the share of official out-of-pocket payments is above 20% (see table 4) in Belgium, in most Southern countries and in most CEEC. It is around 16-17% in Austria and in Finland. All these changes at the macro-level result from changes in the organisation and in the functioning of the health sector. These changes are associated with privatisation and development of the private sector, and with changes in health care financing and principles of management at the micro-level (in particular competition, modes of governance, internal markets, etc.). 3.2 Mirco-level changes in the health care financing Several changes have also been implemented through the development of competition mechanisms within the public health sector and increasing autonomy of public health services (changes of modes of governance, internal markets and outsourcing, decentralisation, legal status of hospitals etc.). A common trend in the Beveridigian model of integrated financing and delivery of health care has been the separation of funding and provision of health care. The objective of this development is on the one hand to improve control over spending and on the other hand to increase the autonomy and the responsibility of the health care provider. The downside is that the institutions which fund health care loose knowledge and control of how exactly treatments are carried out and, consequently, how much they cost. However, the separation of funding and provision enable funding organisations to increasingly operate as purchasers of health care services. So funding organisations can increase pressure on health care providers to compete for contracts The British NHS Trusts This, at least, was the idea behind the introduction of National Health Service (NHS) Trusts in Britain. The 400 NHS trusts representing public hospitals in Britain are no longer granted a fixed budget. Instead they have to secure their financing by winning contracts from commissioning bodies including District Health Authorities (DHAs) and general practitioners with fundholding status and with a budget to purchase treatment for their patients (Pond 2006:7-8). Trusts are non-profit organisations but they are expected to be run like independent businesses, with chief executives and finance directors, and must manage their finances so as to break even, and pay the government an annual charge for the use of their 15

16 capital assets, like private companies. (Leys 2007) The Labour Government, coming into power in 1997, even enhanced the autonomy of trusts by giving them the possibility to apply for foundation status. Foundation Trusts, as they are now called, are no longer accountable to the Department of Health. They are only accountable to a newly installed market regulator. Foundation Trusts, furthermore, enjoy additional freedom to generate income and allocate resources including not only the winning of contracts but also the establishment of commercial arms or the engagement in existing commercial ventures, the sale of land and property, the borrowing of money from private lenders and the transfer of staff to the private sector which, as we will describe further below, has a lasting impact on the organisation of public health care provision. Until October 2006, 52 Foundation Trusts have been approved (Pond 2006:9-10; Pollock 2003). While the establishment of NHS Trusts and Trust Foundations are a special feature of the British health system, the split between purchaser and provider is also characteristic for health care reforms in other tax-based systems. In Sweden, for example, county councils have established separate purchasing organisations in the county or district level in order to fund the local hospitals. By 1994, 14 out of the then 26 county councils had adopted a purchasingprovider model (Andersson 2006:22) DRG systems In connection with the separation of funding and provision, the system of funding has also been altered. On the one hand, hospitals have been given global budgets for infrastructure maintenance and investments instead of full-cost coverage, with the effect that management has to set priorities with respect to spending the limited funds. On the other hand, compensation of costs which was based on the number of days a patient stays in a hospital is now more and more replaced by a Diagnosis Related Groups (DRG) system in which treatments are compensated according to flat rates rather than according to the real costs. Such rates are planned for each treatment and they are the same regardless if a patient has to stay longer due to unforeseen complications. DRG system is supposed to create a special incentive for hospitals to increase efficiency. Supporters of this system have welcomed it as a shift towards a performance-related compensation. Yet, while in the previous system hospitals had an incentive to keep patients longer than necessary in order to increase income, now they have a strong interest in quickly passing them on to cheaper ambulatory or home care. DRG system is becoming a standard procedure in most European health care systems. Changes of mode of governance have also been impulsed in the ambulatory sector. For instance, incentives have been given to the development of networks of doctors in several countries, in UK for instance. The mode of payment of doctors has also been modified in a number of countries. The importance of fee-for-service system has been reduced, as it tends increasing demand, and capitation and salary have replaced it. But these two systems also have some disadvantages as they can result in excessive referrals, overprescribing, reduced access for sicker patients and less responsiveness to patients (Saltman and Figueras). 16

17 3.3.4 The UK Private Finance Initiative A special form financing health care is the Bristish Private Finance Initiative (PFI). Private capital has been involved in the refurbishment, building and maintenance of public hospitals in a number of countries, but nowhere else this policy has been pursued more systematically than in the UK. Although PFI initially was invented by the Conservatives, it was the Labour Government that made it a distinctive feature of the British health care system (Pond 2006:12-13; Pollock 2003:52ff; Shaoul???). As noted before, the major rationale behind the promotion of PFI is to pass on risks to private investors. In addition, supporters of PFI have argued that private sector involvement will make sure that projects are not run behind schedule and budgets are kept. Consequently the role of private partners in PFI goes beyond allocating the financial resources. Instead, it also includes the design and construction of hospital buildings and, in some cases, even the operation of some of the associated services such as catering, cleaning and security. PFI hence involves a consortium of several companies typically including a bank or finance house, a construction company and a facilities management firm. Once the facility is up and running, the PFI consortium charges the relevant public authority the NHS Trust or District Health Authority an annual fee during the 25 to 30 years lifetime of the project. Since 1997 the government has approved 80 PFI health projects worth 16.3 billion pounds (23.3 billion euro). Of these 28 are operational, 15 are in the construction phase, 12 are being negotiated. In contrast, over the same period, the government has given the go-ahead to six publicly funded schemes with a total value of 500 million pounds (Pond ibid.). Hence, since 1997, nearly all NHS hospitals have been financed under PFI. As mentioned before, there are strong doubts about transfer of risks given the long duration of PFI contracts. Furthermore there is increasing evidence that the costs are higher than they were believed to be when the agreements were signed and they are most certainly higher than if the same projects would haven been financed by regular public loans (Hellowell/Pollock 2007; Shaoul/Stafford/Stapleton 2007). The higher interest rates have also had a lasting impact on the provision of services as hospitals, struggling to meet pay their annual fees, have to cut services in order to reduce costs. As Allyson Pollock (2003:56) notes, [t]he average reduction in bed numbers in the first wave of PFI hospitals was 30 percent, while budgets and number of clinical staff were cut up to 25 percent. All in all, the changes in health care financing and management, although not necessarily entailing a shift from a public to a private system, have profoundly altered the way health care is delivered in many European countries. Hence as Thorsten Schulten (2006:14) summarises for the German case, [t]he changes in the hospital financing system were aimed at putting considerable rationalisation pressure on hospitals in order to provide more efficient and costsaving health services. Indeed, the new forms of hospital financing set in motion a farreaching restructuring process of the German hospital sector of which the most obvious results are the reduction of the number of hospitals and hospital beds (including the closedown of hospitals), the reduction in the average length of stay and a growing number of privatisations. 17

18 4. Changes in the provision of health care Cost-containment has led to two at first sight contradictory trends in the provision of health services: On the administrative level consecutive health care reforms have shifted power and responsibilities to the regional and local level including the financing of services and decisions regarding the opening and closing of hospitals. This has led, not only in the Southern countries but also in the Nordic states, to growing inequalities between the regional supply of services and to an increasing fragmentation of services. Yet while administrative responsibilities have been decentralised, at the same time the actual provision of services has been centralised through the merger of smaller clinics into larger hospitals. Hence although the result of recent health care reforms is a reduction in both, the number of hospitals and hospitals beds, but the decrease in hospital beds is less pronounced. 4.1 Hospital closures In Belgium the number of hospitals has been reduced by more than 70 percent since From the previously 531 institutions, only 174 are left (Verhoest/Sys 2006:4). Yet while the number of hospitals has decreased the number of hospital beds remained relatively stable since between 1990 and 2005 pointing to a pronounced concentration process (see table 6). In the UK, in contrast, hospital closures initiated by the conservative government after 1979 were not only aiming at creating larger hospitals but at cutting the level of supply.. In 1987 alone, 4,000 beds have been withdrawn from service (Pond 2006: 7). While the following Labour Government announced the reversal of this trend in 2000, OECD data actually shows a reduction of hospital beds between 2000 and 2005 (see table 6). However, the UK does not stand alone in pursuing this strategy. In Austria, 15 percent of hospitals were closed between 1990 and 2003 (including 3 private hospitals), accounting for almost eight percent of all hospitals beds (Hofbauer 2006:6). In Germany, in contrast, ten percent of hospitals were closed between 1991 and 2004, but 20 percent of hospital beds were withdrawn. This means an elimination of a total of 134,232 beds (Schulten 2006: 3). Southern European countries also experienced massive cuts in hospital beds. In Italy, e.g., the number has been more than halved between 1990 and 2005 (see table 6). 18

19 Table 6: Number of hospital beds CC: Belgium 76,703 79,369 77,799 Netherlands 87,828 82,475 Germany 749, ,303 France 597, , , ,858 Austria 78,565 69,851 63,248 NC: Denmark 41,621 28,785 22,742 Sweden Finland 38,880 36,670 ASC: Unit. Kingd. 252, ,988 Ireland 30,384 28,199 23,760 22,970 SC: Italy 542, , , ,925 Spain 201, , ,081 Portugal 51,254 42,920 40,236 38,326 Greece 60,067 51,500 CEEC: Hungary 82,663 79,226 Poland 248,860 Czech R. 114, ,600 89,160b 87,162 Slovak R. 42,333 36,629 Source : OECD Health Data Abbreviations : CC : Continental countries ; NC : Nordic countries ; ASC ; Anglo-Saxon countries ; SC : Southern countries ; CEEC : Central and Eastern European countries. 4.2 Hospital privatisation The most radical form of privatisation in health care provision is the sale of public hospitals to private investors. A number of countries experimented with the privatisation of public hospitals including Sweden where, in 1999, the S:t Görans hospital in Stockholm has been privatised after it had been converted to an independent publicly owned private law company in S:t Görans is one of the oldest hospitals in Sweden and employs 1,500 employees. It is now owned by the Swedish healthcare multinational Capio. Several hospitals, most of them within the county of Stockholm, have followed S:t Görans example and were also turned into independent subsidiaries. However, these companies are still owned by the county council. Two more hospitals have been reviewed for being transformed but the trend has been put on hold with the adoption of the social democratic initiated Stop Law in While confirming the status quo, the legislation prohibits the sale of further emergency hospitals to commercial for-profit providers (Andersson 2006:8). However, with the election of a conservative government in 2006, it remains to be seen what direction health care reform in Sweden will take in the future. In Austria so far two public hospitals have been sold to private investors, including the German Helios group. One of them has already been re-converted to a public hospital (Hofbauer 2006:15; Rümmele 2007:40). While a number of countries have experimented with hospital privatisation, Germany stands out as the only country in Europe where the sale of public hospitals was carried out at a large scale and in a systematic way (Maarse 2006:996). Between 1991 and 2004 the proportion of private hospitals in Germany increased from 14.8 to 25.4 percent. At the same time the share 19

20 of public hospitals decreased from 46 to 36 percent while the proportion of not-for-profit hospitals remained relatively stable (Schulten 2006:5-6). However, private hospitals tend to be smaller and employ fewer employees. In 2004 the public sector still accounted for 52.8 percent of all hospitals beds (11.5 percent were located in private hospitals) and employed nearly 60 percent of all hospital workers (here the private share accounts for less than 10 percent). Furthermore, more than 82 percent of private hospitals had less than 200 beds and more than 63 percent even less than 100. Only about 4 percent of private hospitals had more than 500 beds (ibid.). Yet, while in the past private investors have focused on small hospitals, more recently Germany has faced a number of stunning takeovers involving large and prestigious clinics 10. The privatisation of the German hospital sector has led to the emergence of several major private hospital companies including Asklepios, Rhön-Klinikum, Fresenius and Sana Kliniken. Together the four largest companies account for nearly one third of all private hospitals (Schulten 2006:7-8). Since all of them want to acquire more hospitals their dominant market position will even increase in the future. The struggle for market shares has also led to series of mergers and acquisitions. 11 The wave of hospital privatisation is expected to continue in the future. Almost all studies forecast further sales of public hospitals in Germany (ibid.). A study made by the economic research department of the Allianz Group, for example, predicts that in the year 2020 the proportion of private hospital will increase up to 40 percent (Hess 2005:11). Other studies estimate that the share of private hospitals might even reach 50 percent (Sal Oppenheim 2001; Schmidt et.al. 2003). A study by the Dr. Wieselhuber & Partner Consultancy estimates that in the year percent of all university hospitals will be privatised and another 29 percent will be organised through public-private-partnerships (Dr. Wieselhuber & Partner 2006). 10 In 2001 the private hospital chain Helios bought 51 percent of the shares of the clinic of the city of Erfurt with approximately 1,121 beds. In November 2002 Helios also acquired the remaining 49 percent. In 2003 Helios took over 94.9 percent of the shares of the clinic of the city of Wuppertal with more than 1,000 bedsin 2004 the private hospital company Asklepios bought the main hospital group of the federal state of Hamburg (Landesbetrieb Krankenhäuser, LBK) which covered seven clinics with 5,688 beds. However, the Federal Cartel Office required the new private owner to sell at least on of the seven clinics to another investor. In 2006 Germany saw the first privatisation of a university hospital when the private hospital corporation Rhön Klinikum AG acquired the university clinics of Marburg and Gießen from the federal state of Hesse. Both clinics together provide more than 2,400 beds. 11 The largest takeover so far took place when the dialysis specialist Fresnius bought the private hospital chain Helios Kliniken. Mergers and acquisitions have raised the attention of the German Federal Cartel Office. As mentioned before the cartel authority required Asklepsios to sell one of the seven clinics it had acquired in Hamburg. In 2005 it even disqualified the takeover of two public hospitals in the district of Rhön-Grabfeld by the private hospital company Rhön-Klinikum AG because this would have given the owner a regional market dominance. Only two weeks later it also prohibited Rhön from acquiring the municipal hospital of the city of Eisenhüttenstadt (ibid ). As the Cartel Office has noted in a note to its decision, in this difficult phase of co-existence between public-law planning guidelines and market-economy control mechanisms it is of decisive importance not to cement dominant positions held by private groups of companies. (Bundeskartellamt 2005). Until recently private hospitals in Germany were almost exclusively owned by German share holders. However, the extent of privatisation, unknown outside Germany, did not remain unnoticed and has increasingly attracted foreign investors. A first major acquisition made by a foreign company took place in 2006 when Capio announced the takeover of Deutsche Kliniken GmbH including four hospitals, two nursing homes and one rehabilitation centre with a total number of 2,600 beds (ibid. 7-8). 20