Trends of Financing and Production
of Healthcare in EU
Eero Linnakko, Deputy Team Leader
1. Different models - same principles
In Europe the politically dominant view has considered
most of healthcare as a social good, which every member of society
is morally entitled regardless of the individual's ability to
pay for it. The consumption of healthcare services in Europe,
therefore, rest on solidarity and collective finance and subsidies.
Within that common view there exist two main healthcare models.
The first is the public mandatory social insurance model, often
referred as a German (Bismarck) model. The second model is the
tax based one, referred as Nordic or British (Beveridge) model.
In both these types, however, we can see mixed supplementary provisions
of different kinds, for example, there may be varying levels of
supplementary, voluntary contributions in both systems. Six of
the old EU member states use the social insurance model. This
is common in the central part of Europe, while the nine taxation-based
systems tend to be found more in the periphery of Europe.
A healthcare system, its governance and finance
are always the results of existing traditions, social values,
medical technologies and economic constraints of the society the
system serves. Therefore, the actual healthcare systems diverge
in EU countries. Each country has acting according to its own
habits and a universal European health care system, therefore,
does not exist. Despite all the differences between health care
systems, all governments of the countries of the European Union
are, constitutionally or otherwise formulated, obliged to do take
care of their citizens' health and therefore citizens have high
expectations in this respect.
In the healthcare system development all European
countries (contrary to the USA), have been following very much
the same principles when developing the welfare state. These principles
include:
- Universal coverage of the
population trough compulsory participation
- Comprehensiveness of principal
benefits
- Contributions based on incomes,
rather than individual insurance purchase
- Cost control trough administrative
mechanism, including binding fee schedule, global budgets, and
limitations on investments.
Because of above principles the healthcare systems
in Europe consume lot of public means leading into the situation
where the additional public money for healthcare has become short.
Now governments, local authorities, insurance companies and patient's
are, increasingly critically asking how the healthcare systems
are using their resources and what are the outcomes they provide.
On the same time, the governments have introduced strict financial
regulation. The general intention in Europe is to limit the growth
or even reduce the level of healthcare expenditures. This development
is part of the common restructuring of healthcare systems in all
European countries.
2. Where are we
2.1 Structures and Processes
In the last part of the 19th century and the first
part of 20th century - regardless of ownership of the healthcare
facilities- the healthcare providers were independent and isolated
institutions governed and financed by the state or charity organisations.
Even within hospitals there often was a separate and isolated
structure that, evidently, reflected the fear of infectious diseases.
Because of the lack of effective medication the patients and hospital
were isolated from the society and from each others.
After the effective antibiotics, the case mix of
healthcare system changed. Instead of infectious diseases and
emergency surgical patients, hospitals increasingly treated cardiovascular
problems, cancers and elective surgery patients. On the same time,
the planning principles of healthcare production changed when
we copied the model of industrial mass production. Bigger or at
least more specialised was better. The growing size and division
of labour dominated the development on 20th century.
Generalist became specialists, knowing more on
less and needing more sophisticated devices for diagnostics and
treatment. This development led to concentration of resources
into the big units. The structure of the system was very much
functionally and quantity (output) oriented. As a result, specialised
and efficient services were first time in the history available
for most of the citizen of Europe. New medical victories were
constantly gained in the battle against the diseases and ill health.
New medical technologies and techniques led to
significant increase in treatment opportunities and patient friendly
treatment methods. These methods increased the demand of services
but reduced average length of stay in acute care. Hospital productivity
increased and the acute hospital beds were used more intensively:
hospitals were treating more and older patients but with increasingly
costly technologies, facilities, equipment's, staff and drugs.
Functional specialisation and related segregation
of the parts, however, caused problems in communication. Lot of
controversy caused, also, that the mass-production model did not
genuinely reflect the core values within the healthcare when the
basic value is the patient orientation and individual care. That
type of care was and still is provided in small mainly local community
oriented hospitals but not always with good technical skills.
Today a greater emphasis in most European countries
is placed on prevention, health education and health promotion
than on "cure". Also, primary and community care will
be looked upon increasingly as a more efficient and effective
alternative to some existing forms of hospital treatment. This
is not, however, to say that hospital care is not needed. It only
will be organised and produced differently.
The result has been a pressure to reduce the number
of "expensive" acute beds in hospitals and to use alternatives,
for example, other residential institutions, community and primary-care
to response the chancing demography in most European countries.
Long term care is increasingly provided in residential institutions
and community and primary care settings. Therefore, many small
acute hospitals were handed over to the community care. Some of
them were even closed
The new healthcare model, ones again, has been
copied from the industry. This is not, however, because the production
philosophy of the healthcare is finally approaching the industrial
one but vice versa. The production philosophy of the manufacturing-
and service industry today reflects the same principles, which
are or at least should be typical for healthcare.
What dominates the development in different industries
today is the client and quality orientation. Instead of mass-production
the manufacturers and service providers increasingly try to take
in to the consideration the individual needs of the client. This
is exactly the same what healthcare professionals say they are
doing with their patients. Consequently, in healthcare we are
moving from quantity to quality orientation. Instead of structures
and quantities we are concentrating on processes and quality of
care. Quality control and improvement mechanisms- auditing, certification,
Total Quality Management (TQM) and Continuous Quality Improvement
(CQI)- will get even greater prominence when money is getting
shorter. These quality tools play a significant role today when
we are restructuring and re-engineering the healthcare systems.
Integration of care and cure around the patient and his problem
take place within the whole healthcare system and not only within
the single hospital. That we now call as a seamless-care model.
2.2 Expenditures and Financing
Until end of the 1980's hospital financing in EU
commonly based on global and even open ended budgets only derived
from the structure and past history of the healthcare system.
In most European countries healthcare providers operated under
strict budgetary constraints. Hospital budgets were generally
historical and resource based and, therefore, rigid and incremental.
The expenditures were divided between the financing bodies according
to the bed-days and number of outpatient visits. The budgets were
usually on the hospital level only and no division of budgets
amongst the specialities was made and internal costs of services
were often unknown. Only in three EU countries budgets were regarded
as financial plans (UK, Belgium and the Netherlands). However,
the importance of the budget as a sole economic management instrument
is decreasing in most EU member states
The total amount of the money we spend to the healthcare
was not questioned and healthcare spending in almost all European
countries increased until the beginning of 90's. Then during the
common economic stagnation the provision of healthcare and financing,
no mater if being based on social insurance or taxation, was put
under scrutiny of a kind that, for some, questions the very foundations
or ethos of the welfare state and the solidarity as an essential
mean of health care provision.
In all EU countries hospitals consume more than
half the health expenditures. The share varies from 50% to 75%.
Nevertheless, the definition, functions and service mix of hospitals
are not the same, which make it difficult to interpret the true
meaning of these differences. For example the hospital budgets
in Belgium, Luxembourg and France (in private hospitals) do not
include physicians' salaries. In Sweden general hospitals treat
also long term patients.
More than 70 per cent of hospitals in Europe are
owned by some sort of a public authority whatever is the financing
model. In all EU member states the central government finances
hospitals, but the proportion of that finance varies greatly.
The lowest is about 5% in the Netherlands and the largest nearly
100% in United Kingdom and Portugal. In all Nordic countries the
local governments pay hospital services and for that they have
the right to levy taxes
Today primary care physicians (GP) and physician
offices, at least in tax based systems, are increasingly getting
their incomes based on the pure capitation principle or mixed
with fee-for-service and salary elements. Also fixed salary is
common. This means that the providers will get their pay based
on the number of the people they serves. Often the payment is
weighted according to the age, sex and known morbidity differences
of the catchments population i.e. those units who serves populations
with greater (expected) need of services will get more incomes
from the financing body.
The traditional financing model of recurrent expenditures
of hospitals based on budget or only the number of bed days has
become inapplicable. Instead, the case complexity based financing
is now adopted in almost all of the EU countries. The independent
purchaser wants to know what kind of services he is getting from
providers. Consequently, economic responsibility and accountability
are now on the departmental level, all costs are calculated and
hospitals are increasingly managed as a firm.
Public and private hospitals are increasingly contracting
with independent financing bodies whether or not their financing
is based on taxation or insurance premiums. The purchaser provider
split is common also in countries where taxes are the main source
of hospital incomes. The split is fully present in seven EU countries,
partially in two and does not exist in four. The evident aim of
the split is to use quasi markets to improve the efficiency.
In thirteen old member states different service
definitions and groups (like Diagnostic Related Groups) are already
being used both in determining, financing and in describing the
services delivered. The variation of definitions is considerable.
Variants of DRGs from the USA are in use in the Nordic countries,
Germany, France, Portugal, Belgium, Spain, Italy and Ireland.
Similar systems based on national development work are in use
or under development in the United Kingdom (Health Related Groups),
Austria and in the Netherlands.
Fee-for-service type of outpatient visit groupings
are in use only in some member states in private policlinics and
hospital. These service definitions, however, are becoming more
important, when different forms of day hospitalisations increase.
Some countries are still using more traditional billing instruments
such as number of outpatient visit.
The central government, regional and local authorities
or health insurers still regulate the health care investment expenditures
in most EU countries. Government subsidies may be available only
for certain new major investments, which are generally based on
national or regional plans and which hospitals must justify by
a business plan. However, minor capital costs and expenditures
are increasingly included into the service prices. Only in the
Netherlands the government does not regulate hospital investments
and the owners of the facility finance them based on economic
reasoning.
Staff development is strongly regulated in most
member states by numbers, structures and salary expenditure in
budget. This principle applies whatever the form of financing
or ownership of healthcare providers. The motivation for a strong
regulation is evidently a will to control the overall public spending
on health and, in particular, hospital services making hospital
financing an instrument of government fiscal policy. This however,
may effectively undermine the other incentives to increase the
efficiency and productivity.
Teaching and research (T&R) are generally considered
to be an important human capital investments produced by the health
service system itself. Therefore, the financing bodies should
finance it separately. It is no more possible to hide it into
the service prices without violating the ability of teaching hospitals
to compete with other providers. In some countries the funding
of T&R is, therefore, based on indicators describing the teaching
and research outcomes. Mostly, however, T&R allocation is
only a separate line in the government budget or, still, only
implicitly included in global budgets.
While private contributions (direct "out of
pocket" or co-payments and private health insurance schemes)
still account for a relatively small proportion of hospital incomes,
this share is now growing. The highest figure is now found in
Finland, France and Italy where the patient fees covers about
8-10% of provider incomes when the average in EU is about 3 -
4%. Patient fees do not (jet) exist in the UK, Denmark and Spain.
Because of limited availability of public finance
private financing initiatives within the public sector, stricter
control of hospital recurrent and investment expenditures and
budgetary efficiency will become even more prominent in future
as today.
3. Where are we heading
3.1. Structures and processes
Within the health care systems the strategic planning
cycle is long. If we ask, where the European healthcare systems
are heading within next 20 years, the answer, obviously, is not
easy to give. The constantly tight budgets, staff constraints
and medical and IT technology will be the main factors of the
future change. Evidently the change will be incremental rather
than revolutionary. The foundation of this vision is the extensive
use of information technology and the results of new bio-medical
and clinical research. Information super highway, multimedia,
artificial intelligence, telemedicine and robotics together with
new medical innovations will offer new solutions. Ones again the
existing new technology will reshape the structure and functions
of healthcare actors maybe more radically than ever before.
The factors behind of the vision are both internal
and external. First the technology already exists. Secondly, healthcare
is information intensive and technical, based on documentation,
images, test result and consultations already. However, the basic
care of the patients will be local and sensitive. The new technology
will help us to integrate these two contradicting aims. Consequently,
the new technology only supports the existing basic paradigms
of care and cure. Thirdly, the new model will be also cheaper
because the more efficient use of scare human resources. Finally,
it will be more quality oriented.
There will be a tension between the trends to decentralise
and, in so doing, improve access to healthcare and to centralise
treatments into the 'centres of excellence' when searching for
greater cost-efficiency and better quality. The solution for that
may be that the middle size specialised hospitals finally disappear.
The specialised care will be concentrated in big hospital because
the economic of scale and scope or small specialised units only
having one or two service lines (day surgery). Local small hospitals
we will have also in future but providing only very basic care.
The trend in ownership of public hospitals, formerly
owned by the central or local governments is towards the regional
bodies, like hospital trusts, hospital districts or county councils
or private owners. The relative share of now dominant public provision
of hospital services is evidently decreasing, but also the private
hospitals seek benefits out of consolidation and mergers when
establishing private hospital consortiums
The old centralised, large scale bureaucratic model
of specialised hospital care, we copied from manufacturing industry
and public administration in 20's and 30's evidently disappears.
Physically at least, traditional multipurpose hospitals may disappear
and hospitals are becoming "mental" or, merely, "virtual"
by nature. So, in future, the buildings, beds, hierarchical structures
and prestige based on size of the institutions will no be relevant
or important features of healthcare system.
As far as hospital non-clinical and even some clinical
support services are concerned, the trend is increasingly towards
outsourcing and networking. New hospital consortia are often geographical
monopolies. Single payers face the single providers equalising
the negotiation power in contracting but, on the same time, aggravate
the use of present models of competition between hospitals.
Highly but differently skilled health care workers
are offering solutions to the problems of patients.
The skills and knowledge of health care professionals and how
they best use these skills for the benefit of patients are the
most essential features of the health care system in future that
demands constant investments for both training and research.
Most of the patients will be cared and treated
near their homes or even in the home. This confirms the physical
separation of three essential parts of treatment - diagnostics,
cure and care. They will be produced separately in different locations
but co-ordinated by physicians behaving as agents of the patient.
For example, small clinical laboratories evidently disappear and
laboratory diagnostic is produced in big highly automated units
seeking even international markets. Images will be taken locally,
stored regionally in electronic storages and maybe read globally.
Hospitals will adopt the matrix type organisation
where care of the patient is considered to be a project and, therefore,
managed like a project. Services will be integrated over organisations
along the service lines. Integrated co-operative service provision
networks are more important than single hospitals. Maybe the sharp
differences between health care professions also disappear or,
at least, diminish. Team work and production cells around the
problem of patients will become the most important factors of
care and cure.
The service production processes within health
care will be organised to be lean, where all kind of waste of
resources is minimised. There will be specialised consultant units
only selling their experience and advises to the other physicians
through the communication networks (telemedicine). This new business
can be international; the information will move extensively and
the patients and professionals minimally. Increasingly specialised
health services are produced on the markets or the market like
situations. Services are defined and priced and traded by different
special agents within health care system. Provision structures
are at least regional but, obviously, some parts of the services
and service patterns and concepts (care guidelines) will be traded
in world-wide scale.
3.2. Expenditures and Financing
Because health care is a labour intensive industry
the total cost care will evidently grow also in future independently
of any cost containment effort. Even if it is possible to get
some productivity gain in curative area of healthcare these gains
are more difficult or impossible to achieve on the area of care
especially on the area of long term care. This area will grow
relatively faster because of the rabidly ageing population.
As far as the insurance-based systems are concerned
noting indicates any significant movements towards a tax-based
system except Spain, where the dominance of compulsory (and statutory)
public insurance is decreasing and the state taxation element
increasing. Otherwise, in countries like Belgium, France, Germany
and the Netherlands, the future may hold more of the same with
possible adjustments being sought between compulsory public, compulsory
private and voluntary private contributions. Of the respondents
in this category only Greece has indicated that personal out of
pocket contributions for hospital care were likely to increase.
In those countries characterised by an essentially
tax-based system there might be a general move towards an increasing
share of insurance contribution, be this of the mandatory public
kind (for example, Greece) or voluntary private (for example Finland,
Ireland, Portugal, UK). There may be opportunities and willingness
to switch to insurance contributions and greater co-payments and
patient fees. This will reduce the burden on the public finance
but, consequently, increasing it on patients
Since the share of elderly people will substantially
increase in the coming decades, one may, apart from the financial
problems regarding old age benefits, expect problems regarding
the related health care costs.
4. Conclusion
There still today are many differences within and
between the healthcare systems of EU member states and it is still
a matter for individual governments within their own national
competencies to seek different solutions (subsidiarity principle).
There are, however, some promising new common technologies that
we can use to solve our healthcare problems. That will not be
easy. The existing structures and mind sets are difficult to change
because it raises justified fear that ones position is changing
to be worse as it is today. That fear we have to overcome to find
the ways to improve the health services for the future in EU.
Also the European Commission shows an increasing
interest to take the lead in establishing a framework to compare
the practical functioning of health care systems within EU countries.
As for the European Union, political considerations, practical
regulations, and rulings of the European Court of Justice may
marginalise the subsidiarity principle and convergence of health
care systems of the EU member states in future.
In a world where patient expectations are rising
rapidly and people are increasingly looking for health services
which offer greater personal choice in health services, it may
not be acceptable or equitable to meet all of these additional
demands through public financing. This makes controlling the developments
within health care a delicate and difficult political affair for
any government. The other difficulty is that health care has an
enormous number of different interested parties, which all want
the developments going their way (healthcare institutions, different
professions, governments, insurers, industries related to healthcare,
individuals and pressure groups).
An imbalance has developed between the availability
of public finance and the potential for services with positive
health outcomes. In insurance-based systems there is unlikely
to be a significant shift in the method and principle of funding.
The position in the tax-based systems is different in that there
are opportunities to switch to insurance contributions of which
private compulsory or voluntary contributions may take an increasingly
large share, thus reducing the burden on the state but, consequently,
increasing it on individuals. Therefore there is a need to explicitly
specify the subset of health-care goods and services that are
to be treated as purely social goods to which everyone in Europe
should be guaranteed access as a moral right. However, the distributive
ethic for health care is usually considered too delicate a topic
for open debate in the political arena.
Evidently the basic package of services will be
provided for all citizens in Europe with public money but some
services, now provided within public system, may move in private
settings. The difficult and never ending task of politicians will
be to define what services should be retained in that basic package.
On the same time, the governments will have difficulties to maintain
the control of total healthcare expenditures because of increasing
private activity in production and financing. Governments can
only control the share of public finance. More private finance
may, however, in long run, undermine the whole idea of solidarity
because of a vicious circle of successive increases in private
and decreases in public finance.
|