Why are hospitals for profit

Public Hospitals: The Limits to Privatization


Fruit, Lothar

A tense relationship: structure, calculation and level of user fees for hospitals do not provide for refinancing of the capital employed by a private hospital operator. Photo: laif
The state must not withdraw from its constitutional responsibility for public services with the superficial argument that it is increasingly leaving the health system to competition.

According to Article 20 (1) of the Basic Law (GG), the Federal Republic of Germany is a democratic and social federal state. The welfare state principle ranks equally in the series of the five state structure principles (republic, democracy, federal state, welfare state, rule of law), is immutable and, as a fundamental constitutional norm, is beyond the disposition of the legislature (Article 79 paragraph 3 GG).

The principle of the welfare state finds its expression in social reality in the broad area of ​​"services of general interest", which also includes health care and thus the hospital system. The core message of services of general interest is the state's obligation to provide services for the benefit of the individual - admittedly not free of charge, but for a reasonable consideration.

The provision of hospitals as an essential element of services of general interest is by no means an act of grace by the state, which is at political disposal or could be subject to economic considerations of usefulness. The obligations are clearly defined: The task of securing inpatient hospital care lies with the rural districts and urban districts, always in terms of time and content regardless of the sponsorship of the facilities. If other legal entities return stationary supply contracts in whole or in part to the state, the responsibility for sponsorship falls to these competent regional authorities.

However, if a sponsorship may ultimately be obliged to do so within the framework of the security mandate, it is also permissible to preventively point out the limits of the privatization of public hospitals. These are located where the content of the welfare state principle is undermined to such an extent that it degenerates into a mere empty phrase.

Proven variety of carriers
Proponents of the privatization of public hospitals derive their lines of argument essentially from the right to freedom of personal development. Proponents of public ownership, on the other hand, argue based on the principle of the welfare state. The state has some leeway when deciding between these two principles. His decision in favor of the freedom of personal development of the individual is not objectionable if another solution is not necessarily required by the welfare state principle (decision of the Federal Constitutional Court [BVerfGE] 18, 257/267).

The hospital system in Germany is shaped by the principle of the plurality of providers, not only for reasons of subsidiarity. Due to the financial difficulties, many cities and districts, but also federal states, have handed over their hospitals to private providers. The proportion of private hospitals has increased and that of public hospitals has decreased. The number of non-profit hospitals remained largely constant.

The continued maintenance of the diversity of providers and thus a certain ebb of the wave of privatization is of structural and socio-political importance for the health care system. This results from the goals pursued by the individual sponsoring groups:
- For public hospital operators, hospitals are a component of social and health policy. You act out of social motivation and decide according to political considerations.
- Non-profit hospital owners orientate themselves on ideological aspects.
Their facilities are "tendency companies". The associations of the voluntary welfare organization act out of their historical tradition. Church hospitals see their main purpose in the religiously based Caritas or Diakonie.
- Private hospital operators primarily pursue economic goals, in particular an appropriate return on the equity capital employed.
From the point of view of the state, the respective goals stand side by side in a legitimate and equitable manner. On the one hand, he must not exclude any non-profit or private association from the possibility of hospital sponsorship, but on the other hand he also has an active obligation to actually exercise his socio-political responsibility. The state must not withdraw from its constitutional responsibility for public services with the superficial argument that it is leaving the health system to competition.

The plurality of sponsors, which is also continued in the associations of the hospital sector, has led to a beneficial balance of diverging goals and thus to a balance between conflicting goals. Different providers with different goals have enriched and further developed the hospital system. One-sidedness could thus be avoided. Just as someone could not feel "missionized" by overemphasizing church sponsorships, nobody was economically dominated or felt underrepresented in their socio-political or ethical values. The plurality of the porters' views reflected a plural and open society.

Keeping the balance
However, this balance is shaken when economic goals are overemphasized by unchecked privatization. The development of the energy supply is a good example of this. Like the hospital supply, the power supply is part of the public service. "Liberalization of the electricity markets" should be used to introduce competition, which should lead to falling prices. But exactly the opposite happened. A power supply in the Federal Republic that was dislocated via many public utilities was not liberalized, but increasingly monopolized. The result of this development is no longer the market and competition, but oligopolistic structures with four regionally positioned, market-dominating companies, the deliberate elimination of all competition and the irreparable financial consequences associated with this for the users. The starting position for the privatization of public hospitals is almost identical to the electricity market.

It is of existential importance for the hospital system to maintain the plurality of sponsors, to guarantee the existence of different objectives as a result of the constitutional welfare state clause and thus to avoid a one-sided economization of the conflicting goals. The necessity of the existence of public hospital operators increases with the level of care of their hospitals. Because the economic interventions of private providers in the overall structure of health care are logically all the more serious, the higher the level of the facility.

It would not be compatible with the state obligation to create equal living conditions if welfare state institutions such as hospitals were dependent on the economic potential of large urban and metropolitan functions. The quality of patient care must not depend on the premium income in the region and thus on the economic strength of the area. Here it is important to design essentially the same life processes in the same way - and this, mind you, for patients, hospitals and social service providers alike. Nevertheless, the privatization of public hospitals is argued with more market and competition - a methodologically unclean use of the term.

Healthcare is not a market in the traditional sense (see box). No society can leave the provision of health services to the market. Above all, the system must promote the provision of health services as well as research and progress - under economical and efficient conditions, of course. However, it must not create the wrong incentives inherent in the system to forego services and thus to actually withhold necessary medical services for the patient.

Each hospital operator orients its operational decisions towards the achievement of the established corporate goals. A private carrier who buys a public hospital wants to refinance the purchase price first and then generate an appropriate return on equity.

What is a matter of course for companies in other sectors is unusual for the hospital sector because of the special nature of the dual financing. Because the structure, calculation and amount of the user fees of the hospitals do not provide an approach for the equity capital employed by the hospital operator. The cost of equity capital or depreciation on self-financed assets are not included in the calculations of the flat rate per case. This is where the real tension arises in the privatization of public hospitals: While the private hospital operator expects the equity capital to be refinanced (which is rational as it could just as easily invest in investment funds), the user fees are only the economic equivalent for pure health care. If the equity is to be refinanced, the expenses for pure health care must be reduced because no alternative is available.

The level of care is falling
The measures with which health care costs are to be reduced are well known: the restructuring of care processes (by abandoning unprofitable service areas and reducing the number of employees), achieving synergy effects (by reducing collectively agreed wages through Outsourcing and the establishment of service companies as well as the reduction of material costs through price and qualitative substitution) and the increase in efficiency (by increasing the workload of the employees).

Since private hospital operators also have no legal possibility of adding their equity costs or certain profit margins to the fees for inpatient services (the rate of change is specified by the Federal Ministry of Health), it is impossible to refinance equity costs outside of a commercial reduction in the level of care. The cuts made by a new, private provider for economic reasons are, in turn, all the more serious for the health care system, the higher the level of care of the privatized, formerly public hospital.

Maximum and specialized care hospitals have always been the driving force behind the further development and progress of clinical medicine. The first large medical devices were operated in the large hospitals of higher quality care levels. University hospitals, maximum and specialty hospitals are the engines of medical progress and, with a time lag, also take the hospitals of basic and standard care along with them. The innovations developed from research usually find clinical application quickly. It is to the great merit of medicine, of those responsible in the health system, but also of German health policy that not only a few centers (as in other European and non-European industrial countries) have formed in the country, but that medical progress has spread across the country pours and thus benefits the entire population.

It follows that the necessity of the existence of a public sponsorship increases as the level of care of the institution increases. Because if private hospital operators cut back medical services for economic reasons and perhaps even give up entire clinical areas and institutes that do not “pay off”, the development and progress of medicine are blocked.

The situation becomes particularly problematic when a federal state only has one institution for maximum university care. In this case, the state hospital operator, who is at the same time responsible for legislative, executive and judicial power, has to weigh up, not from an economic point of view, but exclusively from a constitutional point of view, to what extent a solution other than privatization through the welfare state principle is required. The state agency must then weigh between the state structure principle of the welfare state clause and economic considerations of usefulness. In making this decision, considerations of economic utility can never be given equal priority to the welfare state clause of the Basic Law.

As a result, the limits of the privatization of public hospitals are where there is a single hospital in a federal state with the care level of a university full-service provider. In this case, a solution based on the welfare state principle appears to be absolutely necessary (BVerfGE 18, 257/267), which should rule out the privatization of such a hospital.

How this article is cited:
Dtsch Arztebl 2009; 106 (19): A 924-6

Author's address
Lotha's fruit
Commercial director of the hospital
Reinbek St.-Adolf-Stift
Hamburger Strasse 41, 21465 Reinbek

The talk of the market
Healthcare is not a market in the traditional sense. Because:
- In the health sector there is no self-regulating pricing of supply and demand.
- The system has no investment autonomy on the part of the provider. In the hospital sector, this is being replaced by public planning and requirement coverage procedures with decisions that can be appealed to.
- What the provider lacks in terms of investment autonomy,
the customer lacks market transparency.
- The characterization of the classic market includes freedom of consumption, freedom of contract and customer autonomy - elements that do not exist in the healthcare sector. Whether we make use of health services is not our free or voluntary decision.
Public Hospitals: The Limits to Privatization

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