Austrian Health Fund born

Austrian Health Fund born Country: Austria Partner Institute: Institute for Advanced Studies (IHS), Vienna Survey no: (14) 2009 Author(s): Maria M. Hofmarcher Health Policy Issues: Political Context, Funding / Pooling Current Process Stages Idea Pilot Policy Paper Legislation Implementation Evaluation Change 1. Abstract A Health Fund endowed with tax money will come into operation in 2010 aiming at safeguarding a balanced budget of sick funds. While still in infancy, the Health Fund gives the government more say in sick fund matters. The government endorsed a road map for cutting costs which is linked to disbursements from the Health Fund. It is uncertain if cost targets can be achieved. A wider health reform in response to the economic crisis also adressing the fragmented hospital sector is still overdue. 2. Recent developments During a retreat in February 2009 the center-left government in office since December 2008 pledged for safeguarding a balanced budget of nine regional sickness funds, i.e. "Gebietskrankenkassen" (sick funds) where 80 percent of the Austrian population is insured. The remainder population is covered largely by occupational funds who operate nationwide. Health insurance in Austria is granted on the basis of occupation and residence with no option for choosing among funds. As opposed to most of the occupational plans many of the regional sick funds have been plagued by recurrent expenditure surpluses in the past (see survey 13(2009)). In addition, negative net assets have accumulated in the order of 1.2 billion Euro. To achieve a balanced budget, sick funds receive additional revenues are granted incremental debt forgiveness but equally need to adhere to cost containment measures A first step in implementing the government resolution from February 2009 "(Sillian Papier") was to immediately grant 45 mio. Euro for short-term liquidity (see also Table 1 in survey 13(2009). Further, the government requested the Federation of Social Health Insurance Associations (Federation) to submit a road map for cost containment ("Sanierungskonzept") to the Minister of Health due end of June 2009. This had to be negotiated with providers, in particular with the chamber of doctors. The road map stipulates expected cost savings per year adding to about 1.7 billion Euro between 2010 and 2013. - 1 -

On September 15, 2009 the government endorsed the road map for cost containment that became effective with two laws: Health Fund Law ("Krankenkassenstrukturfondgesetz") ensures that in 2010 sick funds may receive an additional 100 mio. Euro paid through general tax revenues and to be allocated on the basis of the number of beneficiary quotas. For example, the sick fund in Vienna will receive a share of 23.02 percent (equalling its percentage of the overall population covered by all regional sickness funds), that in Vorarlberg 4.51 percent. Neither age nor morbidity differences between regional sick funds are being accounted for. Furthermore, for the years to come the endowment of the Health Fund will need to be re-negotiated between the Ministry of Health and the Ministry of Finance in the context of annual budgetary negotiations. Debt Forgiveness Law ("Verzichtsgesetz") mandates additional funds to partially write-off debts accumulated in the Federal Financing Agency ("Bundesfinanzierungsagentur"). Debts are partially forgiven through annual instalments of 150 mio. Euro between 2010 and 2012, adding-up to 450 mio Euros (see also Table 1 in survey 13(2009)). By this negative net assests should have come down to about 600 million Euro in 2012. In addition, interest payments on remaining sick funds debts are being swapped onto the general government budget entailing probably 18 mio. Euros in debt service (assumed on the basis of 4 percent interest rate). 3. Characteristics of this policy Degree of Innovation traditional innovative Degree of Controversy consensual highly controversial Structural or Systemic Impact marginal fundamental Public Visibility very low very high Transferability strongly system-dependent system-neutral The creation of the Health Fund has two innovative aspects: current previous First, it will give the central government more leverage over the performance of sickness funds. This approach appears in line with developments in other countries like in France where in 2004 governance of social health insurance was completely restructured with much more emphasis on monitoring and stewardship roles coming from the central government (Cases 2006). Also, creating a fund to pool monies for improving governance and efficiency was done in the Netherlands in 2006 and in Germany in 2009. Second, to link disbursements from the Health Fund to measurable cost containment in sick funds is novel in Austria. In addition, attention will be paid that no cost-shifting occurs between sick funds. Also, declared cost containments may not be shifted to the next financial year nor should they be one-time effects. Thus, efforts for cost containment in individual sick funds likely become more traceable and transparency of performance may be enhanced. While still in infancy, the Austrian Health Fund will gain importance when more general tax monies will be fed into it in the years to come. Thus, controversy will remain and probably intensify when guidelines of the new law and targets of the road map prove difficult to be adhered to. So far visibility appears low because the public has been reassured that neither benefits will be cut nor co-payments will be raised (BMG, Presseunterlage, September 2009). - 2 -

4. Purpose and process analysis Idea Pilot Policy Paper Legislation Implementation Evaluation Change Initiators of idea/main actors Government Providers Payers Stakeholder positions The road map for cost-containment 2010-2013 In June 2009 the Federation submitted a road map. This essentially resulted from negotiations between the Federation and the Chamber of physicians. Discussions were held between February and June 09 in four working groups ranging from issues of "financial consolidation" to "needs planning", "quality assurance" and "IT-applications". Further, measures of improving management and administration of sick funds and the Federation have been presented. The development of the road map was guided by the following propositions: Ensuring the level of benefits for all Development of service provision which follows targets and avoids erroneous care provision Obligation to cost efficient service provision Transparency Table 1 indicates cost containment targets for specified areas and summarizes some measures as envisioned. About 24 percent of cost savings are expected to be achieved with measures applied in contractual relations with doctors. A similar share is to be achieved with other contractual partners including laboratory providers. The biggest chunk (about 50 percent) is expected to come from measures targeted at behavioural changes of prescribing doctors. If these measures are ineffective negotiations will be resumed for implementing graded co-pays for drugs. An implementation of such a scheme is possible earliest in July 2011 where an agreement about rebates granted by the pharmaceutical industry and the chamber of pharmacists will expire (see below). - 3 -

Table 1: Cost containment measures according to the road map Expected savings 2010- in % of Total Some measures as envisioned 2013(in mio ) Doctors 407 23.6 Establishment of new ambulatory care models (limited liability companies solely managed by doctors); Other 390 22.6 contracutal Application of unified criteria for fee negotiations partners mainly aiming at linking the development of revenues to fee levels including more emphasis on prescribing behavior and some consideration of the risk structure of the population; New rules for terminating contracts have to be established; Expansion of opening hours are envisioned; Development of new "location plans" by including other ambulatory care providers; Possibilities for single contracts with out-of-network doctors ("Wahlärzte") for specfic services, i.e. cardiovascular specialists Disease management programs should be piloted and quality assurance developed further Establishment of a body to govern IT-related issues in contractual relations between providers and the Federation Drugs 883 51.2 Incentives have to be developed for the prescription of low cost drugs; Lower co-pays for the most cost-effective drugs are planned Administration 45 2.6 Increased efforts to restructure "back office" tasks by unifying data processing and reducing IT-cost, Standardizing purchasing models; Collective contracts with providers will be published electronically via the Austrian national library ( "ANNO database"); Regular benchmarking across sick funds and contractual partners on the basis of models the Federal Audit commission has suggested. Total 1,725 100 % of estimated 2.8 expenditure 2010-2013 Source:Federation of Social Health Insurance Association, July 2009, own calculations - 4 -

Overall envisioned cost savings add up to 2.8 percent of cumulated expenditure of sickness funds 2010-2013 as estimated by the Federation. The presentation of the road map led to a fierce discussion within the government. The Minister of Finance belonging to the conservative people party spread doubt about the credibility of cost containment measures and publicly condemned the Minister of Health, a member of the Social Democratic Party of not governing the process of negotiations appropriately. In particular, more details were claimed to be necessary to make money for the Health Fund available. In addition, discussions had occurred around the process how the money will be disbursed. Members of the Social Democratic Party envisioned immediate allotments to individual sick funds without prior approval by other involved actors, i.e. Ministry of Finance and Ministry of Health. Details about the road map were only released piecewise. Moreover, the paper the Federation issued ("Gesundheit: Finanzierung sichern, langfristige Potenzial zur Steuerung der Augaben und zur nachhaltigen Kostendämpfung") was short of any details about the way cost containment measures were calculated and about concrete financial targets negotiated. This has been criticized in the public. Other stakeholders, in particluar the pharmaceutical industry but also the chamber of pharmacists felt left out of the negotiations around the road map and seem frustrated that decisions have been made in "their areas" without involving them, where after all this part is expected to deliver about half of the cost savings through the road map. In this context the current road map makes reference to a "pharma package" which was contracted in 2008 and basically obliges the industry and pharmacists to claw-back parts of their profits to the Federation and sick funds. This adds to about 180 million Euros in instalments payable until 2011. In return agreements were made that no other measures will be brought forward by the Federation in this period, i.e. reducing cost growth of drugs, generic substitutions and the like. No detailed documentation about this agreement is publicly available. To show compliance with this agreement all "drug-related" measures in the current road map target mainly prescription behaviour of doctors and suggest graded co-pays for drugs. Other aspects discussed is a non-binding notice of intentions. On September 15 2009 the road map was endorsed by Parliament after some adjustments were made in the guidelines for using the Health Fund money. Actors and positions Description of actors and their positions Government Ministry of Health very supportive strongly opposed Ministry of Finance very supportive strongly opposed Providers Chamber of Physicians very supportive strongly opposed Pharmaceutical Industry very supportive strongly opposed Pharmacists very supportive strongly opposed Payers Federation of Social Health Insurers very supportive strongly opposed Individual Sickness Funds very supportive strongly opposed current previous Influences in policy making and legislation In essence no big deviations from the original proposal occurred. All safeguard measures discussed in Spring 2009 have finally been implemented (see also Table 1 in survey 13(2009)). The allotments for the Health Fund are made available for 2010 and require the Federation to define binding milestones with individual sick funds. This should be - 5 -

done on the basis of targets and has to follow specified criteria. In particular they should: help realize cost containment in individual sick funds on the basis of the road map for cost containment be measurable results which have to become evaluative contain costs in individual sick funds at least in the order of 50.000 Euro per year and may not be shifted to the next financial year nor should they be one-time effects not be part of the current cap on administrative cost nor should contained costs lead to outlays of other sick funds or providers, i.e ban on cost shifting serve as "best practice" models for other sick funds and may not compromise care provision to beneficiaries. These criteria were put forward by the Ministry of Finance to ensure proper use of Health Fund monies. While safeguard measures have not been changed in the course of consultations guidelines were specified how the money is being disbursed. In concert with the Ministry of Finance the Ministry of Health has to approve all requests for subsidies coming from the Federation but actual disbursement of monies is made on the level of the Federation. Legislative outcome Enactment Actors and influence Description of actors and their influence Government Ministry of Health very strong none Ministry of Finance very strong none Providers Chamber of Physicians very strong none Pharmaceutical Industry very strong none Pharmacists very strong none Payers Federation of Social Health Insurers very strong none Individual Sickness Funds very strong none Positions and Influences at a glance current previous Adoption and implementation How will the Health Fund operate? The Health Fund will be operated on the level of the Federation but need to be administrated separately from other assets. The law foresees the establishment of a "dependent administrative fund" without legal entity on the level of the Ministry of Health (see also survey 13(2009)) who transfers the money to the Federation. Sick funds and the Federation are requested to adhere to the following process: Measures as negotiated by individual sick funds and the Federation have to be presented to the Ministry of Finance and to the Ministry of Health on Dec. 15 2009. - 6 -

Once approved monies for the Health Fund will be transferred to the Federation (by this general government outlays for health will increase 100 mio. Euros in 2010). These monies should be invested interest-bearing until they are disbursed. The Federation implements the law on the Health Fund and makes proposals about subsidies for individual sick funds. This proposal has to be approved by the Ministry of Health and Finance. The achievement of cost containment goals have to be examined by the Ministry of Health who also approves the disbursement through the Federation. The approval requires consultation with the Ministry of Finance. The disbursements of approved monies will be done on the level of the Federation. If targets are not achieved monies can be shifted forward to the next year. Subsidies can also be granted throughout a year if measures following criteria as stipulated in the law are implemented. The stipulated amount of cost containment will be rolled over to coming years if cost targets have not been achieved by the end of 2010. This means that the requested amount for cost containment will accumulate and creates incentives to intensify efforts to achieve the goals. Monitoring and evaluation Starting in March 2010 the Federation has to submit evaluations about achievements in cost containment on a biannual basis. The Minister of Health reports these results to the government, also on a bi-annual basis. The Federation is requested to submit clarifications if cost containment targets deviate from what is specified in the road map. If deviations persist throughout the year, the Federation is required to propose cost cutting measures for achieving cost targets as stipulated. - 7 -

5. Expected outcome In the medium term the creation of the Health Fund likely changes governance in the health sector. Even though the current endowment is low (about 0,7 percent of current expenditure of sickness funds), the Health Fund may become an important policy tool for the central government to interfere with to date rather autonomous sickness funds matters (see also survey 13(2009)). Subsidies coming from the Health Fund are a kind of bonus. For example, if sick funds are able to economize about 200 million Euro in 2010 as envisaged they reduce their expected deficit (- 264 million according to estimates from the Federation) and receive 100 million bonus. Thus, they will see a revenue surplus in 2010 in the order of about 50 million Euro. While guidelines for disbursing monies from the Fund are tied to cost containment goals which are subject to close monitoring by central government bodies it nevertheless remains uncertain if these targets can be achieved easily: First, the current road map for cost containment seems short of detailed agreements of contracted and quantified cost targets. For example, no target is established in the context of unified criteria for contracts with doctors (see also Table 1). There is a general commitment to link revenues of sick funds to fee levels but not more. Further, to change doctors behaviour has proved to be one of the most tricky issues as also the literature suggest (Custers et al 2008, Dixit 2002). Even though the intention to better govern prescribing behaviour of doctors is valuable and important it probably will take a while to materialize visibly as cost savings (1). Moreover, fee-for-service schemes which largely apply to specialist care in Austria are often detrimental to cost efficient behaviour because they generate incentives for overprovision. Thus, payment schemes may need to be re-engineered which is also a long process. Second, subsidies from the Health Fund will be disbursed according to beneficiary quotas without taking account of the risk structure of sick funds. To link allocation of funds at least on the basis of some risk adjustment across sick funds seems overdue in Austria. Also, the current risk equalization fund used among sick funds and operating in parallel to the Health Fund (see survey 13(2009) does not consider any differences in this respect. In addition beneficiary quotas prevent high performance from being rewarded. For example, sick funds with a low(er) number of beneficiaries but with a high degree of innovation in achieving cost containment or in putting forward best practice models will only receive their subsidies based on quotas which may be lower than what they have "earned". Third, in light of future care needs especially with regard to improvements in better co-ordinated care for chronically ill people the road map for cost containment is defensive. While a finalized framework for disease management seems to exist there is still no nationwide consensus about it on the level of doctors. Also, disbursements of monies as envisaged do not seem to reward innovations in this respect. Even though discussions were held regarding disease management programmes for certain conditions to be launched as pilots no details are specified how up-front investments are made and how providers are rewarded when they adhere to guidelines. Finally and as discussed in survey 13(2009)), this policy has not run-up to the need to re-structure hospital care. While the realisation of cost efficiency in this area is overdue no framework is as of yet developed how care provision should be organized to make the most out health spending. In particular, the cost structure in all care settings will need to be analysed to understand where and how care should be provided. Also, and in this context saving targets appear overly ambitious when judged against what is probably needed to achieve a balanced budget of sickness funds (see also survey 13(2009), Table 1). For example, own estimates show that between 2010-2013 the expenditure surplus of sick funds will have reached about 1.1 billion Euro after safeguard measures have been phased in including 100 million Euro coming from the Health Fund in 2010 (2). This estimated deficit is clearly below of that the Federation has reported in July 09, i.e. 2.7 billion Euro. In particular, sick funds may "only" need to safe about 1.1 billions to achieve a balanced budget. In other words, unless envisaged cost containment measures as put forward also foresee a complete pay-off of accumulated negative net assets, the amount of cost containment necessary for a balanced budget of sick funds appears to be overestimated in the order of about 600 million Euro. - 8 -

On the other hand, these ambitious cost targets may contribute to efforts to pay-off national debts after fiscal expansion comes to an end. Furthermore, in light of expected shortfalls in contribution revenues owing to rising unemployment even in times when weak signs of recovery appear (IHS Prognose September 2009) it is essential to be very ambitious with regard to cost containment. Better liquidity in combination with cost containment in the health sector may be just the right mix for improving performance while also helping to consolidate national fiscal balance in the future. However, in the Austrian context health reform must go beyond issues of safeguarding revenues and matters of sick funds. In particular, as long as cost efficiency in the hospital sector is not addressed a large chunk of economies remain non-harvested. Moreover, pushing most of the burden of cost containment onto sick funds and ambulatory care providers - which the current road map appears to suggest - may jeopardize the "climate" between them and ultimately that between patients and providers when they become discouraged. Thus, a wider health reform in response to the economic crisis where also the hospital sector and issues of better governing fragmented financing is part of is still overdue and necessary. =================================================================== (1) However, very early experience in the federal state of Salzburg seems to suggest that on the basis of an agreement with the regional sick fund doctors have quickly adjusted their prescribing behaviour in favour of most costeffective drugs. (2) On the basis of official National Accounts forecasts from Statistics Austria and the Ministry of Finance in April 09, the following assumption were used for calculating revenues and expenditure of sickness funds between 2010-2013: Revenues develop according to the annual growth rate of revenues coming from "actual social insurance contributions" Expenditure develop according to the annual growth rate of expenditure for "social transfers in kind" which essentially comprises the benefit package of sickness funds. =================================================================== Quality of Health Care Services marginal fundamental Level of Equity system less equitable system more equitable Cost Efficiency very low very high current previous No formal rating of the current policy seems yet possible. Cost efficiency may well increase once sickness funds have succeeded to achieve cost containment targets. As of yet it is too early to say whether this will materialize. Also, the level of quality may increase in the medium term when ambulatory care providers and doctors are increasingly using guidelines in treating chronically ill people through disease managment programms or the like. Unless these programmes specifically target disadvantaged groups the level of equity likely remains unchanged. 6. References Sources of Information BMF. Bericht der Bundesregierung, Budgetbericht 2009/2010. Wien, 2009. BMG (2009): Presseunterlage Kassensanierung, 14. September 2009 BMG (2009): Richtlinien des Bundesministers für Gesundheit für die Verwendung der Mittel des Kassenstrukturfonds, 14. September 2009-9 -

Bundesgesetz betreffend den Verzicht auf Bundesforderungen gegenüber Gebietskrankenkassen, Artikel 51, Budgetbegleitgesetz 2009: Bundesgesetzblatt Nr. BGBl. I Nr. 52/2009 Bundesgesetz über einen Kassenstrukturfonds für die Gebietskrankenkassen (Krankenkassen- Strukturfondsgesetz Artikel 50, Budgetbegleitgesetz 2009: Bundesgesetzblatt Nr. BGBl. I Nr. 52/2009 Cases Ch (2006), French health system reform: recent implementation and future challenges, EUROHEALTH Vol 12 No 3 Custers, Th, J. Hurley, N.S. Klazinga, A.D. Brown (2008), Selecting effective incentive structures in health care: A decision framework to support health care purchasers in finding the right incentives to drive performance, BMC Health Services Research, http://www.biomedcentral.com/1472-6963/8/66/prepub: accessed June 2009. Dixit A (2002), Incentives and organisations in the public sector: an interpretative review, The Journal of Human Resources, 37 (4), 696-727. HVB (2009): Gesundheit: Finanzierung sichern, Langfristige Potenziale zur Steuerung der Ausgaben und zur nachhaltigen Kostendämpfung, Hauptverband der österreichischen Sozialversicherungsträger IHS (2009), Prognose der Österreichischen Wirtschaft 2009-2010. Institut für Höhere Studien, Wien, September 2009. Media coverage Reform formerly reported in Yet to come: health policy response to the crisis Author/s and/or contributors to this survey Maria M. Hofmarcher Suggested citation for this online article Hofmarcher, Maria M.. "Austrian Health Fund born". Health Policy Monitor, October 2009. Available at http://www.hpm.org/survey/at/b14/2-10 -