No. 25 MARCH Average payment times of public healthcare organisations 2012 and prior years

Transcription

1 No. 25 MARCH 213 Average payment times of public healthcare organisations 212 and prior years

2 Ernesto Veronesi Centre for Studies in Health Economics Director: Paolo Gazzaniga

3 Average payment times of public healthcare organisations 212 and prior years Andrea Guglieri Centro Studi Assobiomedica

4 CONTENTS INTRODUCTION 1 AVERAGE PAYMENT TIMES OF PUBLIC HEALTHCARE ORGANISATIONS 2 1. Background 2 2. Key factors 8 2.a Structural imbalance 8 2.b Poor administrative transparency 1 2.c Operational inefficiencies 1 2.d Regulatory framework 12 2.e Civil justice: credit collection times and procedures 17 SUMMARY AND CONCLUSIONS 19 BIBLIOGRAPHY 21 ATTACHMENT 1 METHODOLOGICAL CONSIDERATIONS 22 ATTACHMENT 2 TABLES AND CHARTS: DSO BY REGION ( ) 24 ATTACHMENT 3 TABLES: DSO BY ORGANISATION (DECEMBER 212) 25

5 INTRODUCTION A recent study 1 found, in aggregate terms, that the bad debts reported in the 211 financial statements of European companies represented 2.8% of their total receivables i.e. 34 billion euro. This unprecedented amount is equivalent to the entire Greek debt and more than double the overall budget of the European Union (EU) for 212 (about 147 billion euro). In Italy, 7% of firms suffer liquidity problems due to delayed payments. This is 6% more than in 211. There has been a long history of payment delays by Italy's Public Administration (PA), especially in relation to supplies of goods and services to the National Health Service (SSN). These do not derive from the serious economic crisis that affects many other countries as well. Rather, they are a consequence of decades wasted without tackling seriously such problems as the structural imbalance of the public accounts and the internal inefficiencies of the PA (and the SSN). Over time, these problems have deepened, given the lack of administrative transparency within the public machine and the slowness of civil justice. Unless the State and the Regions adopt radical measures on all these fronts, the critical issue of payment delays will persistent indefinitely. The effects of this problem are not confined solely to the firms that supply the PA. The growth in bad debts suffered by firms is accompanied by a rise in the net nonperforming loans of banks (both in absolute terms and as a percentage of total lending), resulting in higher interest rates and reduced lending to firms. This represents yet another impediment for firms wishing to invest and compete in the marketplace, especially for SMEs with Italian investors, as well as for the Italian economy in general. This study looks at the regulatory changes and the trends in DSO in 212 compared with prior years, as well as at the critical issues and the actions that might be (are) needed. 1 Source: Intrum Justitia, European Payment index,

6 AVERAGE PAYMENT TIMES OF PUBLIC HEALTHCARE ORGANISATIONS 1. Background The data for 212 confirms two facts, both negative. First, the average payment times of Italian public healthcare organisations continue to be among the most extended in Europe 2. Second, seen regionally, this problem continues to have two faces: that of the regions whose health services are chronically and most heavily indebted (Calabria, Molise, Campania, Lazio, Abruzzo), not to mention those already under special administration, 3 and that of the regions that might be expected to provide a better example in terms of compliance with regulations and contracts (Emilia Romagna, Tuscany, Veneto). As an example for the latter, reference may be made to the performance of Lombardy, which in three years from 28 to 21 managed to slash its DSO (having peaked at 373 days in prior years) to about 1 days. The creation of a centralised treasury certainly helped, but the difference was primarily made by the resolute determination of the Region to pursue the normalisation of payments and, therefore, to make the senior management of its healthcare organisations responsible for achieving this goal. Figure 1 Regions subject to rescheduling plans or under observation (December 212) Rescheduling with special administrator Rescheduling without special administrator Under observation Regions subject to rescheduling of debt 47.7% of population 63.4% of public sector deficit. 44% of public health spending Source: Centro Studi Assobiomedica. 2 The statistics on payment times by PAs in other countries are, in reality, somewhat incomplete. This said, the order of magnitude of their average payment times is well known to be less than 6 days almost everywhere. This contrasts with the situation in Greece, Italy and Portugal, where payment delays amount to several hundred days. 3 The Regions subject to the rescheduling of debt comprise those with an administrator ad acta (generally the president of the Region) or a sub administrator appointed by the Prime Minister, and those without a specially appointed administrator, where responsibility for implementing the rescheduling plan agreed with the State is entrusted to the regional councillor for health matters. 2

7 Chart 1 Regional DSO (December 212) CALABRIA MOLISE CAMPANIA LAZIO PUGLIA PIEMONTE PIEDMONT EMILIA ROMAGNA TOSCANA TUSCANY VENETO SICILIA SICILY SARDEGNA SARDINIA ABRUZZO LIGURIA UMBRIA MARCHE BASILICATA LOMBARDIA LOMBARDY VALLE D'AOSTA FRIULI FRIULI V. V.G. TRENTINO TRENTINO A. A.A. Source: Centro Studi Assobiomedica With reference to the eight Regions currently subject to rescheduling plans, only Puglia has recently received the residual funds due. For all the others, the Ministerial Monitors (technical audit of regional compliance and permanent committee for checking on essential levels of care) have maintained the blocks on the release of funding, in the absence of required action by the Regions concerned. The issues raised with these Regions by the Monitors include: delays in reconciling their debt, delays in reorganising and upgrading the network of services, failure to allocate to the health service the funds already provided to the Region by the State. Attachment 2 presents the time series for the national and regional DSO indices; Attachment 3 shows the DSOs of individual organisations at December

8 Chart 2 National DSO (December ) Source: Centro Studi Assobiomedica. Given this picture, one might think that the DSO information tends to overestimate the phenomenon. Instead, the exact opposite is probably true. In particular, the above statistics do not take account of the recourse made to consignment stock in many segments of the market. Consignment stock is a method of supply in which the supplier sends the goods to the customer's warehouse, where it remains the property of the supplier until drawn by the customer. This is a type of supply contract with deferred effects, based on the following process: 1. the goods are held on consignment by the customer; 2. the customer draws the quantity of goods needed (ownership of the quantity drawn passes from the supplier to the customer at that moment); 3. the supplier receives information about the goods drawn from the customer (i.e. the order) and invoices the amount agreed; 4. based on the above information, the supplier tops up the stocks held by the customer. In theory, phases 2 and 3 occur at the same time. In practice, however, this method of supply which represents a tangible service provided to the customer is usually accompanied by the bad habit of many healthcare organisations of 4

9 delaying the issue of orders for the devices actually used by them. These delays should also be considered when evaluating the phenomenon of delayed payments. The markets in which consignment stocks are widely used include implantable orthopaedic prosthetics and devices for cardio stimulation, coronary and related work, and heart surgery. In the case of orthopaedic prosthetics, for example, the phenomenon of walking implants 4 is estimated to represent 13% of the entire market, with peaks of 33%, 35% and 38% in Calabria, Lazio and Sardinia respectively. Chart 3 Share of the implantable orthopaedic prosthetics market attributable to walking implants (212) VALLE D'AOSTA PIEDMONT PIEMONTE LIGURIA LOMBARDIA LOMBARDY TRENTINO A. A.A. VENETO FRIULI V. V.G. EMILIA ROMAGNA TOSCANA TUSCANY MARCHE UMBRIA ABRUZZO MOLISE LAZIO CAMPANIA BASILICATA PUGLIA CALABRIA SARDEGNA SARDINIA SICILIA SICILY ITALIA ITALY 4% 5% 3% 2% 9% 11% 8% 6% 14% 12% 9% 9% 12% 15% 13% 2% 19% 29% 33% 35% 38% % 5% 1% 15% 2% 25% 3% 35% 4% Source: Centro Studi Assobiomedica. This phenomenon is subject to great variability at local level and, by its nature, is very hard to measure from the outside. That said, the delay in sending the order to the supplier is estimated to exceed six months for about one third of the walking implants (up to one half in Abruzzo and Piedmont). After weighting the 4 devices implanted but not yet ordered. 5

10 estimates for each Region with respect to the related market shares, Lazio and Tuscany are found to be the Regions most affected by this phenomenon. Chart 4 Share of the implantable orthopaedic prosthetics market attributable to walking implants considering the hospital's delay in sending the order (212) 18% 13% 69% < 6 months mesi 6 12 months mesi > 12 months mesi Source: Centro Studi Assobiomedica. Chart 5 Share of the implantable orthopaedic prosthetics market attributable to walking implants with hospital delay > 6 months in sending the order (212) VALLE D'AOSTA PIEMONTE PIEDMONT LIGURIA LOMBARDIA LOMBARDY TRENTINO A. A.A. VENETO FRIULI FRIULI V. V.G. EMILIA EMILIA ROMAGNA TOSCANA TUSCANY MARCHE UMBRIA ABRUZZO MOLISE LAZIO LAZIO CAMPANIA BASILICATA PUGLIA PUGLIA CALABRIA SARDEGNA SARDINIA SICILIA SICILY ITALIA ITALY 51% 49% 39% 37% 4% 18% 14% 29% 32% 42% 18% 52% 26% 43% 38% 23% 44% 43% 36% 31% 64% % 1% 2% 3% 4% 5% 6% 7% Source: Centro Studi Assobiomedica. 6

11 The above evidence clearly shows that the issue of delayed payments is not solely attributable to liquidity problems. The latter do exist and are serious, especially in certain areas, but in many cases there is also an impression that, to some extent, they are an excuse to cover up other weaknesses, inefficiencies and convenient situations. The following pages analyse all identified components of the problem: the structural imbalance of Italy's public sector accounts (i.e. the enormous debt accumulated over the past decades), which is a general problem that most seriously affects the health service; the extensive operational inefficiencies existing within public healthcare organisations; lack of administrative transparency within the PA; more generally, the virtual ineffectiveness of the national legislation designed to tackle delayed payments, not least due to the monstrous delays in obtaining civil justice. 7

12 2. Key factors 2.a Structural imbalance It is estimated that the trade receivables due to firms by the Italian PA exceed 7 5 billion euro (based on European Commission estimates, this would seem to represents almost 4% of the total public sector arrears due to all European firms). A large part of this amount (more than 31 6 billion euro) relates to the SSN. The amount due to the medical devices sector by the SSN is estimated to be about 4.9 billion euro. Table 1 Amounts due to the medical devices sector, analysed by Region (December 212) Estimate of unpaid Region medical devices % VALLE D'AOSTA 4,336.1% PIEDMONT 437, % LIGURIA 12, % LOMBARDY 251, % TRENTINO A.A. 21,894.4% VENETO 38, % FRIULI V.G. 36,642.7% EMILIA ROMAGNA 419, % TUSCANY 328, % MARCHE 68, % UMBRIA 43,183.9% ABRUZZO 18,84 2.2% MOLISE 14, % LAZIO 566, % CAMPANIA 826, % BASILICATA 23,.5% PUGLIA 356, % CALABRIA 443,892 9.% SICILY 252, % SARDINIA 113, % ITALY 4,97,887 1.% Source: Centro Studi Assobiomedica. 5 Source: Bank of Italy, Source: Court of Accounts, 29 8

13 The first consideration must be that these statistics are not entirely reliable. This uncertainty about the amount of the debt, which has always existed, highlights various aspects of the problem: firstly, it should not be allowed; secondly, it inevitably renders approximate any proposed actions and rescheduling plans; thirdly, it suggests there is no real interest in keeping the situation adequately under control. In fact, at institutional level, there are at least two "misgivings" about clarifying the level of public sector debt: one centrally, the other regionally. The first misgiving (centrally) is that accurate certification of the debt could raise its incidence with respect to GDP, with repercussions in the financial markets and on relations within the European Union. The concern about the financial markets is really a false problem: looking back to the initial securitisations of healthcare receivables, the Research Centre had discussions at the time with leading operators about their clear understanding that most of Italy's public sector debt classified as "trade" was, in reality, financial in nature. Given this, if implemented effectively, action to improve transparency would undoubtedly have a positive effect in terms of Italy's credibility. With regard to the European Union, the recent acceptance 7 of operations by individual States that increase debt in order to pay their business creditors, is surely an important message aimed principally at Italy. The second misgiving, relating to the Regions (and, therefore, to their healthcare organisations), is that accurate certification would show even greater failure than at present to comply with the Stability Pact and the requirement to maintain a balanced budget. Although this misgiving might be "understandable" (but clearly not acceptable or justifiable) for the Regions under observation but not yet under special administration, it is definitely not comprehensible for those Regions already subjected to a rescheduling plan. Whatever the size of the total debt, the amounts involved are certainly very large. Accordingly, any thought of finding "the one solution", especially something with immediate effect, would be delusional. Instead, a series of actions implemented together is required. Some examples are given below. a. Modify behaviours to improve the quality of amounts due from the PA, for example by establishing administrative transparency (see chapter 2.b), by removing the freeze on seizures (see chapter 2.d), and by slashing the time needed to obtain injunctions for the recovery of receivables (see chapter 2.e). b. Proceed rapidly with the issue of bonds by the State and the most indebted Regions. 7 Source: Il Sole 24 Ore, 22 March 213 9

14 c. Implement a gradual programme of massive disposals of equity investments held by the Ministry of the Economy and Finance, in order to raise liquidity for the purchase, in turn, of regional bonds. d. Implement similar, gradual programmes for the massive disposal of public assets held by the various Regions, using at least some of the proceeds, with a predetermined minimum, to pay suppliers and repay the regional bonds mentioned in point b. 2.b Poor administrative transparency Experience suggests that the proper administration of the purchasing cycle by public healthcare organisations has become an extraordinary measure, implemented on an exceptional, one off basis when it cannot be avoided. In this regard, art of Law 69/29 requires each public body to prepare (and publish on its website) an "indicator of timeliness of payments" to its suppliers, at least once every year. This regulation is widely ignored, especially by healthcare organisations. 2.c Operational inefficiencies The DSO statistics highlight huge differences between the average payment times of public healthcare organisations, in some cases just a few kilometres away from each other. Table 2 shows the best and the worst DSO within each Region. Differences on this scale raise issues on two levels: at a local level, the insufficient attention that is most likely paid to the proper administration of the purchasing cycle; at a regional level, the equally insufficient attention that is most likely paid to the allocation of funds among healthcare organisations, an activity that fails to some extent to take of account of real needs. The situation at Venice's ASL 12 is a case in point. This organisation has complained about a 24.6% reduction in funds received from the Region between 1999 and 21. This flies against any form of budgetary logic that takes account of the needs of the population served 8, causing a chronic and serious financial shortfall (at December 212, this operator had a DSO of 452). 8 Source: Venice ASL 12 How the health service has changed in Venice Health Service Commission Hearing, 7 December

15 Table 2 Best and worst payers, analysed by Region (December 212) Region Organisations that pay DSO at Organisations that pay DSO at fastest slowest PIEDMONT Asl 13 Novara 19 AO Maggiore della Carità 471 LIGURIA Asl 4 Chiavarese 87 AO Galliera 243 LOMBARDY AO Cremona 77 AO Riuniti Bergamo 163 AO Niguarda 87 AO Fatebenefratelli 97 VENETO Asl 9 Treviso 96 AOU Verona 539 Asl 18 Rovigo 481 FRIULI V.G. Asl 6 Friuli Occidentale 62 C.R.O. 135 EMILIA Istituti Ortopedici 111 AO Modena 388 ROMAGNA Rizzoli TUSCANY Asl 12 Viareggio 134 Asl 1 Massa Carrara 633 MARCHE AO Umberto I 8 AO Riuniti Marche Nord 189 UMBRIA AO Perugia 78 AO S. Maria Terni 295 ABRUZZO Asl 3 Pescara 87 Asl Avez, Sulm, L'Aquila 355 LAZIO Asl Roma A 258 Asl Frosinone 59 CAMPANIA AO S. Giuseppe Moscati 131 Asl Napoli 1 1,621 AOU Federico II 1,471 AO S. Sebastiano Caserta 1,374 PUGLIA Asl Battipaglia 144 Asl Foggia 574 CALABRIA AO Reggio Calabria 225 AO Master Domini 1,79 Catanzaro AO Cosenza 1,22 SICILY Asl Trapani 117 Asl Enna 471 SARDINIA Asl 5 Oristano 11 Asl 2 Olbia 358 Source: Centro Studi Assobiomedica. Once again, the improved situation in Lombardy deserves favourable mention. The commitment demonstrated by the Region over the past several years is making all the difference. This is also shown by further examination of the best payers. Excluding the public healthcare organisations belonging to the autonomous Regions, six of the best ten payers at national level are in fact found in Lombardy (table 3). 11

16 Table 3 Ranking of the 1 best payers at national level (December 212) Region Operator DSO LOMBARDY IRCCS Istituto Naz. Neurologico C. Besta 69 LOMBARDY Az. Osp. Valtellina e Valchiavenna 73 VENETO Asl 7 Pieve di Soligo 76 LOMBARDY Az. Osp. Carlo Poma 76 LOMBARDY Az. Osp. Istituti Ospitalieri Cremona 77 LOMBARDY Az. Osp. Bolognini 77 LOMBARDY Az. Osp. G. Salvini 78 UMBRIA Az. Osp. di Perugia 78 VENETO Asl 8 Asolo 79 MARCHE Az. Osp. Univ. Umberto I Lancisi Salesi 8 Source: Centro Studi Assobiomedica. 2.d Regulatory framework Regulations protecting the supplier creditor have existed in Italy since 1978 and, from 22, the entire framework was strengthened by the adoption of two consecutive EU directives (the latest was adopted by Decree 192/212). Table 4 Laws against delayed payments Law 833/1978 (art. 5) Decree 231/22 Decree 192/212 Max. period 9 days Max. period 3 days Max. period 6 days Legally past due, not automatic Legally past due, automatic Legally past due, automatic Legal interest rate ECB rate + 7 p.p. ECB rate + 8 p.p. Conditions not negotiable Conditions negotiable Conditions not negotiable No distinction between public and private No distinction between public and private Distinction between public and private Nevertheless, it is clear that these regulations have failed in practical terms to combat excessive delays in the settlement of commercial transactions, as well as delays with respect to the payment terms agreed between the parties. This is partly due to the behaviour of the Italian Legislator which, as indicated below, has not exactly been consistent. 12

17 New EU Directive (Decree 192/212) The new decree, adopting the latest European directive on the subject, introduces certain amendments and important innovations with respect to Decree 231 dated 9 October 22, which previously regulated this area. The new regulations are summarised below. a. Scope of application: the regulations governing delays in the settlement of commercial transactions apply to all payments made as consideration for such transactions, being contracts between firms and PAs that involve the sale of goods and/or services for the payment of a price. b. Revision of payment terms: Decree 231/22 envisaged just one payment period of 3 days, but gave the parties contractual freedom to agree different payment terms on condition that these were not seriously unjust for the creditor. Under the new law, payment terms vary depending on whether the contracts are between firms or between firms and PAs. With regard to contracts between firms: the payment terms are 3 days, unless the parties envisage different terms in their contract; the different terms agreed between the parties cannot exceed 6 days; the parties may agree terms in excess of 6 days, but only on condition that this is expressly agreed in writing and is not seriously unjust for the creditor. With regard to contracts between firms and PAs: the normal payment terms are 3 days; the parties may agree different payment terms, which may never exceed 6 days; the normal payment terms are automatically extended to 6 days, if the public sector operator provides healthcare services. c. Default interest: the new decree establishes that default interest applies from the day after expiry of the payment terms, without need for the creditor to demand payment and the related interest. As with the payment terms, the interest regulations vary depending on whether the contracts are between firms or between firms and PAs. 13

18 With regard to contracts between firms: in the event of failure to pay on the agreed terms, the debtor must pay interest on the following basis: ECB rate + 8 percentage points (p.p.); or a different rate, agreed freely between the parties, that is not seriously unjust. With regard to contracts between firms and PAs: in the event of failure to pay on the agreed terms, the debtor must pay interest at a rate of not less than the ECB rate uplifted by 8 percentage points. d. Void clauses: if seriously unjust for the creditor, the clauses governing the terms of payment, the default interest rate and the reimbursement of collection costs are void. In particular: clauses are deemed to be seriously unjust, with no possibility to prove the opposite, if they exclude the application of default interest and in relations between firms and PAs if they predetermine or modify the invoice receipt date; clauses that exclude the reimbursement of collection costs are also deemed to be seriously unjust, although the opposite may be demonstrated. For the creditor, the clauses voided for being seriously unjust are replaced by the corresponding clauses envisaged in the new decree. e. Application of the new regulations: these only apply to commercial transactions completed on or after 1 January 213. Transactions completed prior to 1 January 213 continue to be governed by Decree 231/22. Certification, Offset, Guarantee Fund (Decree 152/212) By three decrees published in Italian Official Gazette 152 dated 2 July 212, the Ministry of the Economy and Finance established: 1) the procedure for certifying the amounts due from Regions, local authorities and regional healthcare organisations; 2) the procedure for applying tax offsets; 3) the procedure for invoking the Guarantee Fund for small and mediumsized Italian businesses (SME). 14

19 The objective of these decrees, as announced by the government, is to simplify the certification mechanism for suppliers and debtors, reduce the risk of inertia by the PAs and facilitate the settlement of past due tax payables. Despite the good intentions, these decrees have had little effect up to now. Given the numerous issues found, especially with regard to certification, the scope of application of the three decrees to the medical devices sector is extremely limited. In fact, certification is not available to the creditor in relation to: Regions subject to the rescheduling of debt deriving from healthcare deficits, and the related SSN organisations (Calabria, Campania, Lazio, Abruzzo, Molise, Piedmont, Sicily, Puglia); SSN organisations whose indebtedness is incompatible with the public finance budget. On this basis, certification may only be available from healthcare organisations in possession of liquidity that, until now, has not been allocated for the payment of accumulated liabilities; receivables subject to outstanding court action (e.g. injunctions already granted and notified to the PA concerned). The procedure for requesting certification was activated in October 212 (following creation of an electronic platform by the Ministry of the Economy and Finance, which is managed by CONSIP) and has delivered modest results to date. Based on the data made public 9, 476 applications for certification had been submitted by January 213 (total value 45 million euro), but only 71 certificates had been granted with a total value of just 3 million euro. The status of the decree on the offset of receivables against amounts due to the State seems to be even more critical. 9 Source: Il Sole 24 Ore, 14 March

20 This decree envisages that: certified receivables can be offset against past due tax, pension, social security and insurance payables recorded on the tax roll 1 as of 3 April 212; offset is only possible for debts that have already been passed to the collection agency, which means that the firm must have already defaulted. It is reasonable to believe that there are no firms active in the medical devices sector that have defaulted on payments due to the State (since such defaults would prevent them from tendering for public contracts and therefore from continuing in business, given that the healthcare sector, and the public healthcare sector in particular, is their only available market). Given this scenario, the offset of receivables against amounts due to the State does not apply to the medical devices sector. More generally, the information made public 11 shows that the decree has only had a modest effect up to now, given that total offsets by January 213 amounted to just 15 million euro. The decree on the SME Guarantee Fund envisaged agreement between the State and the Italian Banking Association (ABI) to make available a fund of 1 billion euro to finance small and medium sized Italian businesses (via assignment of their certified receivables due from public organisations to a number of banks willing to purchase them). Although the rules for the management of the Fund were agreed between the State and ABI in the second half of 212, the ability of SMEs to make recourse to the Fund has been "handicapped" until now by the certification process which, as stated, is subject to a number of very serious limitations. Balduzzi Decree (Decree 158/212) This decree extended the freeze on seizures until 31 December 213, it also rendered earlier seizures ineffective and released the amounts set aside by the Regions subject to rescheduling under a special administrator (Lazio, Campania, Molise, Abruzzo, Calabria). This freeze is considered to be illegitimate, both constitutionally and at EU level, since it denies a fundamental right granted to suppliers under domestic and European legislation. As such, it should be abandoned at an early date. It was first introduced in the 21 Finance Law (art of Law 191/29) following a series of regulations ad entem that were also seriously unjust for 1 The "roll" is a list of debtors and amounts due from them following failure to pay direct and indirect taxes, levies and administrative fines. The roll is created by the creditor (Municipality, Tax Office, INPS) and sent periodically to the area tax collection agency so that all enforced collection procedures can be carried out. 11 Source: Il Sole 24 Ore, 14 March

21 private creditors in relation to various financial melt downs of private and public healthcare organisations e Civil justice: credit collection times and procedures One for the reasons why the rules against delayed payments are often disregarded in Italy is the time taken to obtain civil justice. This is extremely long in Italy, often resulting in out of court solutions or acceptance of contractual nonperformance by the PAs. Even the new European regulations regardless of the terms, interest rates and conditions established rely on actions taken by creditors to safeguard their rights that inevitably encounter this problem. The procedure for obtaining an injunction to pay shown in Figure 2 is essentially correct. The problem lies in the administrative time required, which causes serious problems for the creditors concerned. A desirable reform would: on the one hand, make injunctions immediately enforceable after demonstrating (by producing the contractual documentation such as the order, invoice and delivery note underlying the amounts due from the PA) that a demand for payment following default was sent by registered letter, and was not disputed by the debtor within 15 days. This would cut 45/55 days from the time required to obtain justice by eliminating period (c) allowed for objections and reducing period (a) needed to obtain enforcement; on the other, abrogate the regulation that currently imposes renotification of the enforcement documentation and the related waiting period of 12 days (e) before actual enforcement a rule that exists solely in Italy. Accordingly, overall, the time requirement for the various procedures could be reduced by days. This would be an important result, considering that the time taken in Italy to obtain civil justice, and especially an injunction to pay, is the longest among the principal European countries. 12 Politecnico Umberto Primo: Decree 341 dated 1 October 1999; Ordine Mauriziano: Regional law 39 dated 24 December 24; Commissione Istituti Ospitalieri Valdesi (CIOV): Regional law 11 dated 18 May

22 Fig. 2 Steps and approximate times to obtain an injunction to pay in Italy (A) Opposizione Objection by da debtor parte dell ente debitore Decisione sulla on provisional provvisoria enforcement esecuzione Application Richiesta del for injunction decreto ingiuntivo Ottenimento Granting of injunction del decreto ingiuntivo Notification Notifica of injunction del decreto debtor ingiuntivo all ente debitore Conoscenza Knowledge of dell esito outcome della of notification: notifica: (Ad) days gg (a) days gg (b) 2 2 days gg (c) 4 4 days gg (B) Nessuna No objection opposizione by debtor da parte dell ente debitore Enforcement Ottenimento granted della formula by Court esecutiva del Tribunale 8 9 days gg (Bd) 3 3 days gg Re notification Ri notifica del of injunction decreto to ingiuntivo all ente debtor debitore * Writ Precetto and application e richiesta for seizure di pignoramento Seizure Pignoramento Collection Incasso (e) days gg (f) (f) days gg (g) 6 6 days gg days gg days gg (a+b+c+ad+e+f+g) = = Durata Total duration totale = days gg (a+b+c+bd+e+f+g) Source: Centro Studi Assobiomedica. 18

23 SUMMARY AND CONCLUSIONS The average payment times of Italian public healthcare organisations were again among the longest in Europe during 212. There are enormous differences in the payment performances of different Regions and healthcare organisations. As noted, it would be an over simplification to suggest that this is solely due to the liquidity problems of the PAs. While that problem certainly exists, chronic payment delays by public healthcare organisations also derive from a number of other factors: the extensive operational inefficiencies existing within public healthcare organisations; lack of administrative transparency within the PA; more generally, the essential ineffectiveness of the regulations introduced by the Italian Legislator to combat payment delays. On this point, in particular, Italy has no shortage of such regulations. The trouble is, in the end, that they encounter the extended time taken by civil justice to grant injunctions or, sometimes, that they are "neutralised" by other measures adopted in the opposite sense, or are subjected to limitations that reduce their effectiveness. Against this background, although the amount of debt is very high, the real problem is not only its size, but also the degree of uncertainty that surrounds the actual figure. For various reasons, such uncertainty should not be allowed. It inevitably renders approximate any proposed actions and rescheduling plans and, above all, suggests that there is no real interest in keeping the situation adequately under control. The action required therefore includes steps to improve the quality of the amounts due from the PA, for example by establishing administrative transparency (see chapter 2.b), by removing the freeze on seizures (see chapter 2.d), and by slashing the time needed to obtain injunctions for the recovery of receivables (see chapter 2.e). At the same time, it is also necessary to: proceed rapidly with the issue of bonds by the State and the most indebted Regions; implement a gradual programme of massive disposals of equity investments held by the Ministry of the Economy and Finance, in order to raise liquidity for the purchase, in turn, of regional bonds; 19

24 implement similar, gradual programmes for the massive disposal of public assets held by the various Regions, using at least some of the proceeds, with a predetermined minimum, to pay suppliers and repay the regional bonds mentioned in the first point. The actions mentioned are all possible and would produce early results within the next six months. The main uncertainty is whether or not the PA actually wants to become more transparent and to comply with the rules that it rightly imposes on firms. In this regard, the following closing remarks relate to the announced actions that would make 2 billion euro available by the end of 213 and a further 2 billion in ) The amounts announced would cover, over an undefined period of time that is likely to be extremely long, about 56% of the total debt that, as mentioned, currently exceeds 7 billion euro. 2) Absolutely nothing has been said about how to pay the remaining 44%, which implies that this aspect will not be addressed before Unfortunately, the impression once again is these are improvised declarations, at a time when there is urgent need for something radically different. 13 Source: Il Sole 24 Ore, 22 March 213 2

25 BIBLIOGRAPHY Intrum Justitia European Payment Index survey (212) Annual Report 211, Bank of Italy. Presented to the Ordinary Meeting of Participants. 31 May 212 (212) Report on the General Accounts of the State June 21 (21) Venice ASL 12 How the health service has changed in Venice Health Service Commission Hearing. 7 December 211 (211) Law 833 (1978) Decree 231 (22) Decree 192 (212) Decree 152 (212) Decree 158 (212) Eu. B. Pressure for 1 months, evasive replies to date Il Sole 24 Ore, Thursday 14 March 213 No. 72 page 11 C. Fotina. PA payments, 4 billion on the plate Il Sole 24 Ore Friday 22 March 213 No. 8 page 3 21

26 ATTACHMENT 1 METHODOLOGICAL CONSIDERATIONS In 1991, Assobiomedica established an observatory on receivables to monitor the time taken by public healthcare organisations to pay for medical devices. Since then, the observatory has processed every month the invoicing and receivables data provided, region by region, by a panel of firms that is statistically representative of the entire sector. The results of processing are represented by the DSO (days sales outstanding) parameter: this reflects the average number of days between the date of invoicing and the date of collection, thus indicating the average collection period of a supplier. This report makes no distinction between the payment times of the healthcare organisations and the collection times of suppliers, although a period of 1 15 days could properly be attributed to the postal service and treasury functions. For the Regions where the debts of organisations in liquidation are under management, the DSO calculated also include such debts. In these cases, it is not entirely accurate to speak of payment times for active healthcare organisations, given that the debts to be settled are not included in the financial statements of the organisations concerned, since these healthcare organisations (the same as before) are incorporated in a new legal entity (different to before). From a methodological standpoint, the DSO parameters at national and regional level are processed monthly (based on the invoicing and receivables data obtained from panel firms) using the following formula: receivables of each firm x month moving average sales of each firm All amounts include VAT and are stated net of any default interest. They relate to supplies made to organisations with the suspension of VAT (excluding therefore sales to resellers and private healthcare organisations) and do not include receivables assigned without recourse (e.g. to factoring companies). The formula used has the limitation that the DSO parameter will vary, regardless of any real change in payment times, if the amount invoiced in a given month is significantly different to that invoiced in the same month of the prior year (DSO will rise if there is a slump in total sales by firms and will fall if there is a peak in their total sales). The extent of this error is considered to be sufficiently low, and limited to the short period of a few months in which such events might occur. 22

27 A more precise alternative for calculating the DSO (usable by each firm, but not by the Association given the limited information collected) would be the count back method, an example of which is provided below. Assume a total amount due in month "t" of 11 million euro, with sales in that month of 4.5 million. Deduct 4.5 from 11, obtaining 6.5 million, and count 3 days. Deduct the sales made in month "t 1" (say 3 million) from the residual debt of 6.5 million, obtaining 3.5 million; count a further 3 days (which added to the first 3 makes 6). Deduct the sales made in month "t 2" (say 2 million) from the residual debt of 3.5 million, obtaining 1.5 million; count a further 3 days (which added to the first 6 makes 9). Now assume that the sales made in month "t 3" amounted to 6 million. This is greater than the residual debt. So, rather than deducting the first from the second, it is necessary to calculate the "daily" sales for month "t 3" (being 6 million divided by thirty days = 2, euro per day) and use this result to calculate the number of days sales represented by the residual debt (1.5 million divided by 2, euro per day = 7.5 days). Having done this, add 7.5 days to the 9 days already accumulated to obtain the updated DSO for month "t". Monitoring the average payment times of healthcare organisations is just a first step towards adequately measuring the problem i.e. measuring the related cost borne by the suppliers. The average payment times for each Region should be weighted to take account of the underlying debt which, in turn, largely depends on the level of spending (at regional level) that generates it: in simple terms, it costs more to be financially exposed for 5 million euro for 2 days, rather than for 5, euro for 4 days. 23

28 ATTACHMENT 2 TABLES AND CHARTS: DSO BY REGION ( ) 24

29 ITALIA Gennaio Febbraio Marzo Aprile Maggio Giugno Luglio Agosto Settembre Ottobre Novembre Dicembre Gennaio Febbraio Marzo Aprile Maggio Giugno Luglio Agosto Settembre Ottobre Novembre Dicembre Gennaio Febbraio Marzo Aprile Maggio Giugno Luglio Agosto Settembre Ottobre Novembre Dicembre Fonte: Centro Studi Assobiomedica, osservatorio crediti

30 Abruzzo Gennaio Febbraio Marzo Aprile Maggio Giugno Luglio Agosto Settembre Ottobre Novembre Dicembre Gennaio n.d Febbraio n.d Marzo n.d Aprile Maggio Giugno Luglio Agosto Settembre Ottobre Novembre Dicembre Gennaio Febbraio Marzo Aprile Maggio Giugno Luglio Agosto Settembre Ottobre Novembre Dicembre Fonte: Centro Studi Assobiomedica, osservatorio crediti

31 Basilicata Gennaio Febbraio Marzo Aprile Maggio Giugno Luglio Agosto Settembre Ottobre Novembre Dicembre Gennaio n.d Febbraio n.d Marzo n.d Aprile Maggio Giugno Luglio Agosto Settembre Ottobre Novembre Dicembre Gennaio Febbraio Marzo Aprile Maggio Giugno Luglio Agosto Settembre Ottobre Novembre Dicembre Fonte: Centro Studi Assobiomedica, osservatorio crediti

32 Calabria, Gennaio Febbraio Marzo Aprile Maggio Giugno Luglio Agosto Settembre Ottobre Novembre Dicembre Gennaio n.d Febbraio n.d Marzo n.d Aprile Maggio Giugno Luglio Agosto Settembre Ottobre Novembre Dicembre Gennaio Febbraio Marzo Aprile Maggio Giugno Luglio Agosto Settembre Ottobre Novembre Dicembre Fonte: Centro Studi Assobiomedica, osservatorio crediti

33 Campania Gennaio Febbraio Marzo Aprile Maggio Giugno Luglio Agosto Settembre Ottobre Novembre Dicembre DSO MIN DSO MIN Gennaio n.d Febbraio n.d Marzo n.d Aprile Maggio Giugno Luglio Agosto Settembre Ottobre Novembre Dicembre Gennaio Febbraio Marzo Aprile Maggio Giugno Luglio Agosto Settembre Ottobre Novembre Dicembre Fonte: Centro Studi Assobiomedica, osservatorio crediti