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UEHP News OCTOBER 2013


EUPOPEAN ECONOMY
The Second Economic Adjustment Programme for Greece- Fourth Review – April 2014


EUPOPEAN ECONOMY
The Second Economic Adjustment Programme for Greece- Second Review – May 2013


Health Professional Mobility in a Changing Europe
New dynamics, mobile individuals and diverse responses



3. Investments in health care

Private hospitals are often in the public debate being”stigmatised” because of the ownership by private capital. “Nobody should make profit of health services” is a popular saying, but in the real – and modern world – things are not so simple, and the truth may be completely different.

First of all the issue of making money on health care is not (just) connected to the investment side. Suppliers of pharma, medical equipment, and any other item used to run the health service are based on making money. Doctors, nurses, managers and all other staff is making money out of health services. The list could go on, but as health services are one of the big industries in European societies, it of course also involves money making big time.

Behind some of the discussions is also the fear that if private capital is behind the investments in health services, it will lead to inequality, and references to the US health system are common. But there are enormous differences between the European model of health and the American, and is this case the most important issue is this context is not who owns the hospitals, but who pays. That is where the inequality comes into the picture, and the European model builds on (in principle) equal access for all paid by the public health system – whether it is based on general tax revenue (Beveridge system) or on a public insurance system (Bismarck model). Therefore it is the universal coverage that creates equal access to the health system – now who owns the hospitals or other parts of the health system.

Systems in Europe that are based on Beveridge systems and with no (or very small) private hospital sector has traditionally claimed to be free of private capital interests, and as all health services in these systems are paid by the general tax system and does not have to include profits to the investors, this thereby establishes the most equal and fair health systems! This is the arguments often used in the UK and in Scandinavian countries.

As mentioned before in this book, the reality is that these systems are beginning to create huge inequalities, because they are not able to function as intended any more. The inability for these systems to deal with the increased pressure – because of demography and because of rising costs of health equipment and services – are creating intolerable waiting time, and this has mean that those with enough economic means are jumping the queues and cutting their own waiting times by using the private sector, and perhaps going abroad for medical interventions.

Even for less dramatic situations, incentives are being created because the public system does not work properly. In the Copenhagen area of Denmark a new system has been introduced some years for calling medical attention outside of normal working hours. This system has been prone to all kind of criticism, and one of them is very long waiting times when you call them. This has lead to the creation of several private doctors who are easy to access by phone and who promises to be with the patient within very short time. These so-called Uber-Doctors are gaining popularity - but for those who can afford to pay. So the health system, which is strongly built on the basis of equality, creates inequality because the public system does not deliver!

Also people who are not belonging to the very rich are moving in that direction via the enormous growth of private health insurances, mostly seen in Beveridge system countries.[1] In many cases this is (partly) paid by employers who do not want their employees to be victims of long waiting times in the health system because of the subsequent productivity loss.

Waiting times often appear because of a cost saving strategy pursued by health authorities. But the truth is that although there may be immediate savings in policies that create waiting times, in the long run the result will be the opposite, because waiting times means disease progression before interventions are happening, so the argument for investing in reducing waiting times is the same as the argument for investing in prevention of diseases: It is better for the patients, and it is better – and saves money – for the societal economy.

For patients long waiting times are of course a really serious problem. Cancer is a good example, but in general early diagnosis and inventions is preferable for the patients, but indeed also for the societal economy. The loss of productivity, the deterioration of conditions and thus often more expensive long time care, costs society a lot of lost productivity, lost tax revenues and additional health sector costs for dealing with the aggravated conditions and the subsequent long term care.

So in stead of a stubborn rejection of private hospitals, perhaps the debate should turn more toward a realistic debate about whether or not the publicly financed systems can deliver for the future, and if so at what costs, including the wider societal costs as mentioned above.

On addition there are countries in Europe where the state of the public finances are so tight that proper financing of the health services in the future are a real issue – and even more so if the goal is to maintain the European model of health care. [2] So a preliminary conclusion is that a future for European health services without private engagement including private investment capital is unlikely to succeed. Therefore the discussion should turn more towards the real problems that could be part of the private investment capital, and address them rather than the principle, and then consequently organise the reimbursement systems so they fit with goals the health system should achieve rather than after whether the racier of the reimbursement is privately and publicly owned. The issue is not to punish or reward the various types of suppliers, but to give incentives for the health system to provide value for patients and for the society – in other words optimal outcomes for the lowest possible cost.


Private investment capital can indeed have both positive and negative impacts.

On the positive side there is first of all the relief for public finances in lifting the increasingly heavy burden of financing the health systems – both on new investments and in running and managing parts of the health system. Another factor is that a hospital owned by private investors normally will look carefully at the efficiency and thus for example try to eliminate waste and corruption.

The search for efficiency can also have negative consequences in the sense of making hospitals focus only on dong profitable things and thus not to be involved in broader societal issues, such as education, preventative measures, etc. However, the public authorities can deicide what is profitable trough the reimbursement systems, so if the health authorities want private hospitals to be more involved in health care than doing standard interventions (which by the way always will help patients by shortening waiting lists), it can be done by including other things, like for example prevention or after hospital care, in the reimbursement systems. And then again, in stead of having different scopes of reimbursement for the different types of hospitals (public and private) it would make more sense to look at the entire health system and determine incentives for the work (i.e. reimbursement systems) according to the value that is created – for patients and for society.

One thing that can disturb the functions of private hospitals is the short-termism of many investors. If for example investors only stay with the same hospital for a relatively short period (for example five years) it forces the hospital to prioritise the efficiency as seen from the shareholder side, and this will normally not be about the value creation, but rather the direct profit created.

The present systems in Europe need to be modernised and upgraded to incorporate value considerations. From the public side there is too much focus on costs without considering what you get for the money, and from the private side there is often too much focus on making profits rather than creating value. So again the solution is to manage the health systems from a value creation viewpoint rather than from a pure cost or a pure profit viewpoint.


Investors in private hospitals in Europe - overview

Xxxxx

Trends over time – comparing with US

Xxxx

What do investors want?

Xxxxx

Return on investments……

Can private hospitals and their owners go into other parts of health system, for example prevention, if reimbursement systems are right?

Pension funds as investor? Demography has created large pensions funds for the older generation. Can they be invested into health areas so they can create a good circle – support the lives for retired people and at the same time help maintain good health systems by investing there?

Data to show how many private hospitals contribute to general health, mortality rates, reducing waiting times.

Data to show if private hospitals crated higher inequality in access to health or the opposite?

Trends in private investments over time – Projections for the future? Will the demographic development change perspectives – for example bring in private pensions funds to a higher degree? Should pension funds be mobilised to greater extent to create a “good circle” of demographics?

Data on types of investors – geography origin, types of investors, sole investors or groups.

Investment in individual hospitals or in chains?

Average return on investment in hospitals – to compare with other type of investments.

PPP Example. Box:


The PPP experience in the Portuguese health sector

We are at a particularly fitting moment to reflect on the "Portuguese experience" of PPPs in the health sector, since the first 10-year cycle of private clinical management of NHS hospitals is ending and, as such, there are already several evaluations, namely from public entities, on results as far as access, clinical excellence and citizen satisfaction are concerned but also on financial performance and value for money for the State.


There may be different opinions and perspectives, including ideological views on the role of the State and the nature of the NHS, but we should differentiate them from the objective evaluation of the model and its application. It will be helpful to steady the existing information about the results and compare them with the established goals.

Public-private Partnerships in the Portuguese health sector.


PPPs were launched in 2001 as a way to improve the overall performance of the public health care service through private funding and management.


There were four goals with which the State launched the Hospital PPP program:


Have new hospitals operating on schedule (no time slippage)

Get investment and operation cheaper than if executed directly by the State (CPC - Compared Public Cost)

Achieve efficiency and savings for the State (Value for Money for the State)

Not bear additional costs for

“overwork” (no financial slippage)



Although the investment and management of these hospitals are private, it was a basic and principle point in the launch of PPPs in the Portuguese health sector that access to clinical services is the same as in any other public hospital. That is, patients maintain in these PPP hospitals the same access rights they have in the NHS.


Another important aspect is that, at the end of the contracts, hospitals (with all their equipment) revert to the State.


In Portugal, there were 4 PPP hospitals, with the following expected characterization:



Gross area

(m2)

Implantation area

(m2)

Floors

Beds

Operating Rooms

Consultation

rooms

Parking

Cascais

46 000

12 000

8

277

6

33

864

Braga

102 000

17 000

7

704

12

59

2.194

VF Xira

40 000

16 000

10

280

9

33

808

Loures

63 000

19 000

6

424

8

44

1.269


Private providers invested more than 460 million euros in new hospitals:



Braga

Hospital

Cascais

Hospital

Loures

Hospital

VF Xira

Hospital

Invest

160 M€

90 M€

115 M€

101 M€


It is important to note that, due to the management contracts signed, hospitals in PPP are the most scrutinized hospitals in the country. PPP hospitals are subject to accountability by means of:

ü  70 performance parameters regarding results

ü  27 performance parameters regarding service

ü  Patients satisfaction survey

ü  Employees satisfaction survey

ü  Audits by various public entities

It should also be noted that, in accordance with PPP contracts, not only is the remuneration of these hospitals subject to the activity performed, but payments may also be affected by deduction penalties.


Evaluation of results


Analysis to the model of PPP Hospitals in Portugal conclude that these hospitals represent savings for the State, even higher than expected, and have a high level of care.

The Catholic University of Portugal [3] concludes that, just between 2012 and 2015, the benefit of these PPPs for the State amounts to more than 100 million euros in the case of Braga Hospital and more than 60 million euros in the case of Cascais Hospital.


The most recent, complete and comprehensive studies of PPP hospitals have been produced by UTAP - The Project Monitoring Technical Unit, approved by the Ministries of Finance and Health and they conclude that:

  • “PPP presents value for money compared to a public management alternative, from a standpoint of economics, efficiency and effectiveness;
  • There is an effective materialization of the foreseen savings;
  • The partnership, when analysed in terms of benchmarking with the Reference Group's EPE hospitals, proved to be advantageous from the point of view of economic rationality, allowing to generate savings compared to the charges that would be incurred if average unit costs of these hospitals were taken into account;
  • We see that the mechanisms, as established by contract, have in fact lead to an effective transfer of risk to the private stakeholder”[4]



Conclusions


It should be recalled that the basic problem was / is the sustainability of the health system, starting with the National Health Service (NHS). Public Private Partnerships were one of the answers found to contribute to the sustainability of the NHS.

Fifteen years after the PPP Hospitals process began, the conclusion is that the goals have all been met and the State has gained more than anticipated. Today we have four PPP hospitals, NHS hospitals, delivered on time, modern and operating with high levels of efficiency, quality and patient satisfaction. These are hospitals that are not only properly licensed but are by far the most systematically and comprehensively monitored and audited healthcare institutions, whether clinically or financially, ensuring access, complying with procedures, etc.

Savings for the State are quite significant - over 20% compared to traditional management - and this results from the professionalism of the teams and the flexibility and incentives of private management rules, but also because the contract “demands” good performance.


Given the very positive assessments made by public bodies, one would expect that the least positive points should be resolved and overcome, and that the State and citizens could continue to enjoy the benefits of the PPP model.


Unfortunately, in Portugal the debate was totally skewed by ideological bias towards private initiative, which led the Government to pledge not to launch any more PPPs and out of the 4 existing ones, one was reverted to the public sector in September 2019 and, in relation to the other, the operator has already informed that, in view of all the political constraints and their financial consequences, there are no conditions to maintain the contract beyond May 2021.




[1] In Denmark for example 55%......

[2] Analysis of Iberian systems

[3] “Avaliação da poupança para o Estado das Parcerias Público-Privadas dos Hospitais de Braga e de Cascais”, da Universidade Católica Portuguesa – Centro de Estudos Aplicados, 2016

[4] No caso de Cascais ver UTAP (2016: 233-235). No caso de Braga ver UTAP (2017: 267-269)

 

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