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ANNEXE 5. G ermany: example of the public-private mix HOPE-AIM-Conference „Private or Public Hospital? Which choice for health insurance tomorrow?“ Speaker : Ralf-Matthias Heyder, German Hospital Federation Da te: January 21 st 2005. Definitions and concepts. - PowerPoint PPT Presentation
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ANNEXE 5
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Germany: example of the public-private mix
HOPE-AIM-Conference „Private or Public Hospital? Which choice for health insurance tomorrow?“
Speaker: Ralf-Matthias Heyder, German Hospital FederationDate: January 21st 2005
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In Germany there are three different types of ownership: public, private for profit and pivate non-profit
Public
General hospitals, usually owned by a municipality (city, rural district/county)
34 university hospitals, usually state-owned („Bundesland“, i.e. Bavaria, Saxony …)
Private non-profit
General hospitals, usually owned by churches or welfare associations
Private for profit
General hospitals, owned by private companies
These private companies are in turn owned by stockholders, private insurance funds or other big private investors
There is one private university hospital. For several university hospitals privatisation is currently being discussed
1. Definitions and concepts
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The term „privatization“ carries two meanings – it either refers to a change in ownership or to the use of specific management tools
Meaning 1 („Wider sense“):Introduction of management tools commonly associated with the private sector
Privatization
Meaning 2 („Narrow sense“):Change from public to private forprofit ownership
i.e.: a municipality sells its hospital to a private investor
i.e.: outsourcing, process optimization, financial controlling/cost control, specialization, group purchasing, standardization, benchmarking, …
these management tools can be employed independently of the kind of hospital ownership
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In order to facilitate „private“ management tools privatization in the narrow sense is one of several possibilities for public hospitals
Change of legal form (reorganization)
Management contract
Minority shareholding
Majority shareholding
Many municipalities choose to adopt legal forms that were previously mainly used by private companies (i.e. limited corporations)
This change of legal form usually goes along with organi-zational changes
Management is taken over by a private company
The private management obtains extensive authority and decision-making power
The municipality retains ownership
Public companies acquire hospital shares but do not get full managerial control
Public companies acquire more than 50 percent of hospital shares and acquire full managerial control
0 %
100 %
Publicly owned sharesPrivately owned shares
50 %
Private ownership (privatization in the narrow sense)
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Large hospitals tend to be publicly owned while private investors tend to focus on smaller hospitals – this is currently changing
298,000 (54,4%)
201,000 (36,7 %)
49,000 (8,9%)
Public hospitals (including 34 university hospitals)
Private non-profit hospitals
Private for-profit hospitals
Number of hospitals 2002 (total 2,221)
Source: Federal Bureau of Statistics, „Grunddaten der Krankenhäuser und Vorsorge- oder Rehabilitationseinrichtungen 2002“, all hospitals included
Number of beds 2002 (total 548,000)
817 (36,8 %)
877 (39,5 %)
527 (23,7 %)
Public hospitals (including 34 university hospitals)
Private non-profit hospitals
Private for-profit hospitals
2. Ownership in the hospital sector – facts and trends
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0
500
1000
1500
2000
2500
1990 2001
- 9,6 %
The share of public hospitals is declining while the share of private hospitals is rising
Public
723
Private non-profit
804
Private for profit
468
1043
843
321
Total: 1995Total: 2207
Number of hospitals over time (psychiatric hospitals excluded)
+ 45,8 %
- 4,6 %
- 30,7 %
Source: DKG, „Zahlen, Daten, Fakten 2003“, p. 16, psychiatric hospitals are excluded
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The state is pulling out of the hospital sector – hospital manage-ment becomes increasingly independent from direct state control
0
100
200
300
400
500
600
700
1990 2001
Th
ou
sa
nd
Public277
Private non-profit
198
Private for profit
41
387
207
23
Total: 516Total: 617
Number of beds over time (in thousand, psychiatric hospitals excluded)
- 16,4 %
+ 78,3 %
- 4,3 %
- 28,4 %
Source: DKG, „Zahlen, Daten, Fakten 2003“, p. 16, psychiatric hospitals are excluded
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In East Germany private for profit and public ownership is more prevalent than in West Germany
0
20
40
60
80
100
West East
Public 63,7
Private non-profit
18,4
Private for profit 17,9
51,9
41,7
6,4
Percentage of beds, East and West Germany, 2002
Source: Federal Bureau of Statistics, „Grunddaten der Krankenhäuser und Vorsorge- oder Rehabilitationseinrichtungen 2002“, psychiatric hospitals are excluded
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There are two reasons for hospital privatization in Germany – German reunification and increasing pressure for rationalization
Reunification (imprtant factor in the past)
Rise to a large extent due to public hospital sales in East Germany after reunification
Pressure for rationalization (is a more important factor now)
Changes in the system of hospital financing
Reasons:• East German hospitals did not have
to accumulate reserves for pensions• East German municipalities had no
experience with managing hospitals
Increasing pressure for rationalization
Extent of privatization depends on the ability of public hospitals to deal with increasing pressure for rationalization
Predictions regarding the extent of privatization of public hospitals are not possible
3. Causes for hospital privatization
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In Germany the hospital sector is subject to the principle of „dual financing“
Investment costs Running costs
Financing institution
Procedure
Respective state governements
Hospital applies for investment subsidies; after negotiations the state authorities decide how much and when money will be made available (state investment programme)
Health insurance funds
Hospitals bill provided services to health insurance funds; the amount billed may not include investment costs; the maximum amount billed per year may not exceed a certain amount (hospital budget)
Dual Financing
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In 1993 annual increases in hospital remuneration were limited to the annual growth rate of collected health insurance fees
Principle of full cost cover
Introduction of individual budget caps per hospital
Capped budgets per hospital
1993 Present
Before 1993
All expenditures had to be financed by the social health insurance funds
No deficits possible
After 1993
Yearly increases in the remuneration of individual hospitals have been tied to the increases in the amount of health insurance fees the funds collected
Deficits possible
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Hospital
Cost increases
Budget increases
Since 1993 costs rise faster than individual hospital budgets – the pressure for rationalization is continually increasing
Pressure for rationalization
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In 2003 Germany has introduced a DRG-system for remuneration – the pressure for rationalization has increased even more
Characteristics of the DRG-System
Remuneration is connected to individual case characteristics
Level of remuneration depends on the average resources needed for the treatment of specific diagnosis
Remuneration is based on average prices
Prices of individual DRGs are calculated from cost data of a representative sample of hospitals
1.
Incentive to minimize costs per case in order to maximize return per case
2.
Pressure for rationalization
Hospital
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The pressure for rationalization requires the use of modern management tools and investments into modern infrastructure
use of modern management tools and methods commonly associated with the private sector („privatization in the wider sense“)
Pressure for rationalization
investments into modern infrastructure
requires
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Insufficient state funding in past years has resulted in a buildup of necessary investments amounting to at least 27 billion Euro
Investment ratio
- 38,8%
Year Ratio
1991
1998
8,5 %
5,2 %
Source: RWI, „Das Krankenhaus, Basel II und der Investitionsstau“, Heft 13, p. 15-22
Assumption
Minimum investment ratio for sustainable hospital financing is 10 percent
Estimated buildup
The estimated buildup of necessary hospital investments amounts to 27 billion Euro
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Private companies have competitive advantages regarding the use of modern management tools and the financing of investments
Needs
Preconditions
Competitive situation
Use of modern management
Access to know-how
Investments
Access to private capital market
Commitment to rationalization
Public hospitals often do not have the required know-how and therefore depend on input from private companies
Due to the lack of state financing and their access to the private equity market private companies have a competitive advantage
Public ownership can imply the involvement of political bodies in hospital management
Conflicting goals, complex decision-making process, lacking commitment to rationalization
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Collective wage agreements and public procurement laws are competitive disadvantages for public hospitals
Public sector collective wage agreements
• Compensation depends on age → difficult to take merit into account
• Compensation for low-qualified labor is too high while compensation for highly qualified labor is too low
• Insufficient accounting for new job descriptions and job patterns
Public sector collective wage agreements inhibit flexibility
Public procurement laws
For publicly owned comapanies the law requests specific procurement procedures (calls for tender)
But: Up to 70 percent of hospitals costs are labor costs → need for flexible wage policies
Time consuming, limited power to negotiate for lower prices
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Municipalities are increasingly unwilling to finance their hospitals` deficit – sales of public hospitals to private investors increase
Growing deficits
Due to budget constraints municipalities are increasingly unwilling or unable to finance their hospitals` deficits
Municipalities sell their hospitals to private investors („privatization in the narrow sense“)
Some public hospitals do not realize sufficient gains from rationalization
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Several factors contribute to the privatization trend – despite this trend many public hospitals successfully compete in the market
Need for investments
Management know-how
Public procurement laws
Collective wage agreements
Tight municipal budgets
Decision-making
Privatization trend
This trend is not an automatism – many public hospitals are very successful in the German hospital market
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A number of factors are limiting the potential for privatization in the German hospital market
Success of public hospitals
Availability of private capital
Potential profitability of individual hospital locations
The role of the private non-profit owners
Limits of privatization
4. Limits of privatization
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Not all hospital locations have the potential to generate profits, but they are necessary for sufficient healthcare provision
Private companies will not operate these hospitals
Each state („Bundesland“) is obligated to provide an equal standard of healthcare for all citizens – therefore these hospitals are needed
The state has a responsibility to finance hospitals that otherwise would not be operated
Some hospital locations do not have the potential to generate profits (i.e. rural areas with small numbers of cases)
but
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The private non-profit sector has been very stable – so far sales of private non-profit hospitals to private for profit investors are rare
0
100
200
300
400
500
600
700
1990 2001
Th
ou
sa
nd
Public277
Private non-profit
198
Private for profit
41
387
207
23
Total: 516Total: 617
Number of beds over time (in thousand, psychiatric hospitals excluded)
- 16,4 %
+ 78,3 %
- 4,3 %
- 28,4 %
Source: DKG, „Zahlen, Daten, Fakten 2003“, p. 16, psychiatric hospitals are excluded
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Due to the factors that limit hospital privatisation it is impossible to predict the structure of hospital ownership in ten years
0
100
200
300
400
500
600
700
1990 2001 2015
Th
ou
sa
nd
Public
277
Private non-profit
198
Private for-profit
41
387
207
23
Total: 516Total: 617
Number of beds over time (in thousands, psychiatric hospitals excluded)
- 16,4 %
+ 78,3 %
- 4,3 %
- 28,4 %
Source: DKG, „Zahlen, Daten, Fakten 2003“, p. 16, psychiatric hospitals are excluded
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