Health systems around the world are being shaken to their foundations by the COVID-19 pandemic. By shedding light on latent risks or problems of which we were unaware, the crisis represents a major test for our analytical frameworks, the way we have structured our learning programs, our policies and our actions. COVID-19 and the financial crisis it has triggered for the hospital sector invite us to examine healthcare financing from the point of view of healthcare establishments. The World Health Organization (WHO) and the International Hospital Federation (IHF) are joining forces to identify possible solutions that will guarantee the future of autonomous hospitals and their best contribution to the goal of universal health coverage (UHC).
Bruno Meessen (WHO) and Eric de Roodenbeke (FIH)
Over the last few decades, our collective understanding of healthcare system financing has advanced considerably. Twenty years ago, we adopted the point of view of the health system steward and developed a broad and detailed understanding of the essential functions of any health financing system (resource collection, pooling and purchasing of services). This framework has inspired, structured and supported action and reforms in many countries. Low- and middle-income countries (LMICs), for example, have begun to explore ways of using the purchasing function to influence provider performance. Soon after, we adopted the household perspective and realized that beyond the well-documented problem of financial access, there was the problem of catastrophic health spending. Today, financial protection is monitored on a global scale and is a key element of the sustainable development goal of Universal Health Coverage (UHC).
Healthcare facilities as businesses
While we have devoted much attention to how purchasing agencies (ministries of health, insurers…) might influence provider behavior through payment methods, we have overlooked the fact that many healthcare providers and other specialized players (e.g. drug distributors, laboratories) are enterprises, i.e. autonomous organizations that are responsible for their own economic viability (we use this term in the broad sense of organizational economics : it also covers entities such as autonomous public hospitals or private not-for-profit health centers, for example). This has direct implications for healthcare financing. Capital must be financed. As a reminder, capital goes beyond infrastructure and equipment, and also covers inventories and cash. Most of us working in healthcare finance are unfamiliar with the mechanics of raising capital, monitoring its burn rate, tracking cash flows and responding to cash shortages… We’ve always assumed that working capital wasn’t an issue (perhaps because much of our collective thinking has focused on MRFPs where government healthcare facilities can’t take out bank loans and never default?) We’ve assumed that healthcare providers were “existing” and never considered that their mere existence needed to be financed. Yet this is also part of healthcare financing.
These assumptions no longer hold. Around the world, the COVID-19 crisis has put independent healthcare establishments, and hospitals in particular, under unprecedented financial pressure. The American Hospital Association estimates financial losses for the first four months of the crisis at $202.6 billion for U.S. hospitals. For some autonomous healthcare establishments, the risk of insolvency is imminent: for lack of cash (mainly due to the sharp reduction in revenue caused by confinement, but also to rising costs), they will not be able to repay certain sums they owe: to their staff for work carried out over the past month, to social security for their employees’ cover, to their suppliers for certain medical equipment or medicines, to banks for loans they have taken out for certain heavy investments, etc.
To overcome the crisis, many healthcare establishments will have to cut costs (e.g. lay off staff) or obtain a line of credit from a bank, reschedule repayments to creditors or an injection of funds from shareholders. Those with insufficient assets to repay their debts will go bankrupt, possibly resulting in asset sales and a complete shutdown of operations. It’s not just a case of small, undercapitalized private clinics: before COVID, public hospitals in OECD countries were already in a critical financial situation, with high wage bills, a general pattern of investment cuts and growing debt. In France, for example, the consolidated debt of public hospitals was already 30 billion euros. In PFMR, indebtedness was probably less of a problem, but the business model of many hospitals is also compromised by lower utilization and the additional costs induced by the response.
We need to better understand the pre-existing conditions in different contexts, identify the implications of the current crisis and ensure that solutions are part of a broader framework in which hospitals are aligned with the CSU’s objective.
The first lessons
Governments will not stand idly by as their hospital sector collapses. They will draw up rescue plans and probably use them as political instruments to speed up the transformation (sometimes more than necessary) of the sector. From a political point of view, this will raise specific questions depending on the context. In many PFMRs, one of the problems is that collaboration between health authorities and private providers has often been limited; here, collaboration mechanisms and platforms have yet to be put in place. In high-income countries and many middle-income countries, much more than general governance, the main issue will be to develop technical solutions adapted to the already hybrid status of the hospital sector.
As a recent analysis by Wilm Quentin of the European Observatory on Healthcare Systems and Policies illustrates, this area of action overlaps to some extent with provider payment mechanisms (the crisis, for example, is calling into question the over-reliance of some national healthcare systems on activity-based financing models), but not entirely. The current challenge is to manage the loss of revenue resulting from the interruption of normal activities, and its direct impact on hospital cash flow. This is the new agenda for the healthcare financing community.
Quentin reports that some of the responses were innovative. “In Germany, a new law was approved at the end of March, guaranteeing that hospitals receive daily compensation (560 euros per day) for each empty bed until the end of September 2020. In Belgium, the federal authorities have created a short-term cash advance for hospitals (worth one billion euros), among other things to compensate for lost revenue. In Poland, hospitals in the public hospital network receive their usual monthly payments despite significantly reduced activity, and hospitals outside the network can apply to receive monthly payments for contracted services on the assumption that these will be provided later in the year. In the Czech Republic, where hospitals continue to receive their usual monthly payments, the question of shortfall will only arise at the end of the year, when the annual bill is settled. In Switzerland, hospitals do not receive financial compensation for the loss of revenue resulting from the cancellation of elective admissions. However, like any other company in the country, hospitals can apply for bridging loans and short-time working allowances. If hospitals apply for short-time working, they can reduce their salary costs, and 80% of the difference between their employees’ current salary and their normal salary will be covered by the government”.
These different examples (taken from the specific context of Europe, where autonomous hospitals are well integrated into public health systems) are interesting. The example of Germany shows that provider payment mechanisms could be part of the solution. The case of Belgium suggests that the issue is perhaps first and foremost one of responsiveness and emergency management (although certain rules will need to be laid down to ensure that the crisis fund is shared equitably). The case of the Czech Republic shows that, in some cases, existing financing systems already have successful features. The case of Switzerland shows that many solutions could be found in the wide range of measures put in place for businesses in general.
Governments can be very creative in designing support systems for private companies: deferring tax collection, reworking accounting rules, subsidizing or exempting certain costs, etc. These schemes and solutions have not been developed for the healthcare sector, although some may be more favorable to it than others. The healthcare sector has a number of specific characteristics – the high proportion of labor in the production function, the non-versatility of infrastructures… and, more fundamentally, its public mission.
In their dialogue with ministries of finance or other ministries (e.g., labor), ministries of health may also wish to tailor schemes to specific objectives. In some countries, privatization of the hospital sector has taken extreme forms in recent decades, with national or local governments seeking to reinvest in the sector and regain a degree of control. In almost all countries, strategic questions will be asked as part of the “Building Back Better” program. Is it right to use public money to save all hospitals in difficulty, or should there be certain criteria? Should additional conditions be added (for example, the obligation to merge with another group or to close certain activities)? Should new rules be applied (e.g., the obligation to communicate certain health and economic data, or mechanisms leading to downward price revisions)? Assistance plans will be essential for the survival of many hospitals, but could also be strategic for a much better foundation for the CSU…
The number of questions is enormous…
The way forward
Over the past two decades, we have made enormous conceptual and empirical progress in understanding how health financing arrangements can contribute to coverage, efficiency and equity. COVID-19 teaches us that we need to accelerate our learning about the sustainability of our healthcare systems.
We need to better understand healthcare financing from the standpoint of independent healthcare facilities, and then, armed with this understanding, integrate it into an overall perspective of equity and efficiency in the healthcare system.
At WHO and the International Hospital Federation, we believe that this program is not only urgent in view of the current crisis, but also global and relevant in the long term. A growing number of countries have embraced the agenda of greater autonomy for healthcare establishments, including their public sector. This raises a number of strategic questions. What degree of financial autonomy is desirable in a specific context? What are the many implications of this global trend, including for emerging issues such as health safety or societal inequality? How does this policy direction fit in with the development of an integrated network of providers and progress towards the CSU’s goal of sustainable development?
Our aim is to develop this learning program in an inclusive, step-by-step manner. In the coming weeks, we will be contacting a number of relevant stakeholders to map out the issues and agree on possible first steps. We will enter into dialogue with the national organizations of healthcare providers affiliated to the International Hospital Federation, but any member organization mandated to promote the interests of autonomous hospitals can contact us. Documenting the current crisis, and more positively, the innovative responses developed by governments, insurance funds and hospitals themselves, will be one of our priorities. We anticipate that the learning program will require cross-disciplinary collaborations (hospital administration, business studies, tax and law…); if you have expertise in this area, please do not hesitate to contact us. It’s going to be a long journey, full of learning and progress towards our common goal of “Health for All”.
