Revolution of hospital financing reform plan

• Abstract
• Characteristics of this policy
• Purpose and process analysis
• Expected outcome
• References

Abstract

The Swiss Senate might decide to distance itself from the strategy of the hospital financing reforms indicated by the federal government. Anticipating the times with respect to the government bill, the Committee of Social Security and Health of the Council of States suggests conferring the role of single buyer to the sickness funds and binding the financial participation of the cantons to all the basic health services instead of tying it to hospital stays only.

Neue Entwicklungen

Innovationsgrad	traditionell		innovativ
Kontroversität	unumstritten		kontrovers
Strukturelle Wirkung	marginal		fundamental
Medienpräsenz	sehr gering		sehr hoch
Übertragbarkeit	sehr systemabhängig		systemneutral
current    previous

The committee's proposal appears in line with the present philosophy of the Health Insurance Act, which tries to keep a balance between private forces and the State, competition and planning, within a mandatory health insurance system. This dialectic is shown in the strengthening of the planning role of the cantons in the hospital field on the one hand and in the creation of a single final buyer of the basic services (the sickness insurers) on the other. Moreover the financial co-responsibility of the cantons with respect to the entire health expenditure might encourage the State, together with the health insurers, to promote the integration of the service providers into networks of care which cover the entire therapeutic chain.

Purpose and process analysis

Current Process Stages

	Idee	Pilotprojekt	Strategiepapier	Gesetzgebung	Umsetzung	Evaluation	Veränderung/Richtungswechsel
Implemented in this survey?

Initiators of idea/main actors

• Regierung

• Parlament

• Leistungserbringer

• Kostenträger

Stakeholder positions

The present system

Health care financing in Switzerland is characterized by the large number of financing bodies. The most important third party payers are: (1) sickness funds (which run compulsory health insurance by charging citizens a community rating premium) and (2) the regional governments (cantons), which pay a subsidy to public-interest hospitals by using general taxation funds. This dual financing system fulfills two different objectives: (a) it makes health care financing less regressive, since inpatient care in public-interest hospitals is subsidized by the State; (b) it grants regional governments the power to plan the supply-side according to inpatient needs of the population and to directly control a significant part of the hospital sector. 

As we already pointed out in a previous report (see survey round #4, Hospital Financing Reform), the present system of hospital financing needs to be radically reformed.

The proposal of the Federal Council

In its 2004 draft bill the Federal Council suggested moving the present system towards the so-called "dual-fixed" financing scheme. Instead of paying subsidies just for public-interest hospitals, in future the cantons should be responsible for the financing of 50 percent of all acute inpatient services, while the mandatory health insurance would be responsible for the other 50 percent. Academic medical education and clinical research, since they have some public goods characteristics, would be entirely financed by general taxation and based on a service contract.

What are the most important innovations of the government bill with respect to the status quo? If the dual-fixed model of financing were to be approved:

• the formalities for financing public-interest and private hospitals would become identical (with a resulting increase in transparency and the chance to operate a benchmarking among institutes). Today an increase in hospital admissions in private institutes has repercussions only at the level of insurance premiums, whereas the same event in public structures also has important repercussions for public finances. This different impact reflects on the effectiveness of hospital planning. The reduction, by means of the planning instrument, of excess capacity in the private clinic sector (closing of institutes) is frequently opposed by political groups in favor of privatization policies and at the same time advocates of a downsizing of public expenditure. Due to market failure and supply-induced demand, excess capacity in the hospital sector does not have a positive impact on prices (in a functioning market we would expect a fall in prices) but leads to an increase in the volume of services reimbursed by the compulsory health insurance.
  Since in future each hospital activity (public and private) would also have an impact on the cantonal taxation system, it is right to expect a greater convergence among the various interests involved, especially the need for a greater planning effort.
• an absolute symmetry among the health insurers and cantons would be brought about as far as the financial fall-outs of hospital activity are concerned; today, in the case of public-interest hospitals, the insurers cover a fixed rate, which is the result of negotiation, and which should correspond to a maximum of 50 percent of the hospital's operating costs, while the cantons finance the investments and ensure the cover of the part of costs not compensated for by the proceeds (estimated deficit). This asymmetric position encourages and exasperates the cost-shifting strategies between the third-party payers, whereas in future each extra franc cost (respectively each saving) would be shared ex post between the two main financing bodies.
• hospital financing would be anchored to services and based on the negotiation of diagnosis-related full-costing flat-rate reimbursement (AP-DRG) among insurers and hospitals. The payment of the flat-rates which concern inpatients would be shared according to a very precise key among insurers and cantons (for example 50 percent-50 percent, or 45 percent insurers and 55 percent cantons). In the case of an agreement not being reached between the contracting parties, the task of fixing the rates would fall on the cantons as already occurs nowadays.

The unsolved issues

Although it offers a solution to some problems linked to the present financial system, the Federal Council's proposal leaves at least three basic questions unsolved:

1. The participation of the cantons in hospital financing has the merit of smoothing down the social rung of the community rating premium, by means of the introduction of money coming from taxation into the system. Of the two principal components of public expenditure in the health care field, hospital financing (5.3 billion francs in 2003) is far greater than the amount spent by the cantons to reduce premiums (about 1 billion, i.e. 1/3 of the 3 billion distributed in 2003 for premium reduction purposes). As with the present system, on the other hand, the dual-fixed model proposed by the Federal Council suggests subordinating public participation to the provision of inpatient hospital services. Thanks to technological progress and the spread of techniques which make it possible to carry out many surgical operations in day hospitals, it cannot be excluded that in future the frequency of stationary inpatient care will be lower than at present, with the resulting decrease in the "progressive" financing share over the total of health expenditure.
2. A distortion, at least on a theoretical level, is maintained between inpatient and outpatient care. In other words there is an incentive for cost shifting between inpatient and outpatient services, since the transfer of a patient from the inpatient regime to the outpatient one (let us suppose cases where total costs would be more or less comparable) determines a decrease in the expenses for the cantons and a corresponding increase for the insurers. Vice versa, in the case of a transfer from the outpatient regime to inpatient, an extra burden is caused for the cantons and equivalent relief for the insurers. It is demagogic to try to deny the relevance of this distortion by arguing in the following way, as Federal Minister Couchepin did in his intervention to the senate on 20 September 2005: since "a hospital stay costs much more than two or three appointments at the doctor's" the insurers are practically not interested in encouraging this kind of treatment and "the distortion of the competition is only a technical question and does not exist at a practical level" (see reference [1]). Obviously the possibilities of transfer concern only a certain kind of patient for whom a surgical or diagnostic operation which can be carried out in both ways (inpatient and outpatient) is necessary. The choice of the kind of care is undeniably influenced by financial aspects, linked in the first place to the generosity of the reimbursement scheme and only in second place to the identity of the financing body. Between 2001 and 2003 the costs of hospital services provided in outpatient regime (+13.3 percent) increased more rapidly than the costs of inpatient care (+10.4 percent), indicating a transfer of patients towards the outpatient regime. In 2004 with the introduction of a new fee-for-service scheme, which is less convenient for outpatient services in hospital (TARMED), the trend has been inverted, and there is just a slight increase in the expenses for services offered in the outpatient regime (+2.4 percent) and a great increase in inpatient care (+11.1 percent) (see reference [2]). In the first semester of 2005, following the introduction of payment in some cantons according to AP-DRGs for inpatient care, the relative prices have changed again and expenditure for outpatient services have started to rise again. Without doubt this kind of strategy is encouraged by the fact that the hospitals are always able to find an ally among their own financers (in the one case the cantons, in the other the insurers). On the other hand it is to be presumed that in the presence of a single buyer it would become more difficult for the hospitals to look for that particular form of service supply able to maximize their own revenue.
3. The dual-fixed method keeps cantonal territoriality in force in the hospital field. In the future, too, the hospitals in a certain canton would take advantage of a monopoly position, since cantonal authorization would still be necessary for patients to obtain hospital care in another canton. The share in the costs by the canton of residence (50 percent of the AP-DRG price) would be guaranteed only for patients whose admission in another canton was judged necessary from a medical point of view.

  The proposal of the Committee for Social Security and Health of the Council of States

There are three main innovations in the proposal formulated by the Committee of the Council of States with respect to the dual-fixed model.

1. The public contribution should be anchored to the whole of basic health services and not limited to hospital stays and payments for home care and nursing homes. Instead of paying a subsidy for services offered by particular institutions (stays in public-interest hospitals, home care and nursing homes) the cantons would be called on in future to pay a contribution calculated as a fixed percentage share on all the services covered by compulsory health insurance. The committee suggests fixing a reference share-part at national level, equal to 30 percent. According to the calculations presented by the committee itself it would be a percentage which, on the whole, would come very close to present public expenditure. For individual cantons, however, the change would not be neutral from a financial point of view, since the participation of the State today presents very marked differences in the various cantons, as is shown in figure 1.
   In order to keep this impact in mind a gradual adaptation of the cantonal contributions is foreseen. The cantons which at present pay more than 30 percent (Geneva, Basle Town, Schaffhausen, Berne, Nidwalden, Neuchâtel, Grisons, Zurich, Glarus, Valais and Uri) could reduce their own contribution by half a percentage point per year until they reach the national threshold (but they do not have to reduce it). On the other hand the cantons which today pay less than 30 percent and experience an average premium level above the national mean value would be expected to adapt their contributions by an annual increase of one percentage point. In fact 11 cantons would enjoy special treatment; although they pay less than 30 percent, they are now faced with a level of premiums which is lower than the national average (these are Argovia, Appenzell Inner-Rhodes, Appenzell Outer-Rhodes, Fribourg, Lucerne, Obwalden, St. Gall, Solothurn, Schwyz, Thurgovia and Zug). If the level of premiums were kept at a lower rate than the national average, these cantons would only be obliged to contribute in accordance with the present percentage share.
2. The public contribution should be paid quarterly to the health insurers on the base of the effective costs generated by the whole range of services reimbursed by compulsory health insurance. Thus the insured would become the unique final buyers for all these services. Unlike a "pure" monist system (where a capitation fee, defined ex ante, would be transferred to the insurers by the State), the committee's proposal has the advantage of not exasperating the incentive of risk selection and cream skimming. Since the public contribution is not paid ex ante but ex post, it acts as a "reinsurance fund", in that it enables the health insurers to transfer 30 percent of the costs generated by each insured subject to the State. The cantons would have the right to control the correctness and the appropriateness of services invoiced quarterly by the various health insurers, by demanding all the information they require.
3. Since the contribution of the cantons is paid to the insurers and no longer to the hospitals, the present system authorizing hospital admissions outside the canton would no longer make any sense. The prices of one hospital would therefore apply without exception to the citizens of one canton and to out-of canton residents, dismantling the present cantonal monopolies and reinforcing competition among hospital structures.

  By analogy with the dual-fixed model:

1. the task of planning the health requirements for the whole population, including the persons who have acquired a private (integrative) health insurance, would fall on the cantons. Besides the job of defining the maximum limits of hospital capacity and the range of services authorized for each hospital, the cantons would be held responsible for attributing to single institutions a contract for services of general interest (the obligation to take on patients, to maintain hospitals below the optimal size, i.e. with diseconomies of scale for reasons of regional policy, and to maintain university research and training). These services of general interest would be entirely financed by the cantons, by means of taxation revenue.
2. the insurers would be called on to negotiate full-costing prices with the hospitals (on the base of a flat-rate per case) and possibly with nursing homes and the associations which offer home care. The obligation to contract would be maintained, compelling the insurers to sign a contract with all the hospitals inserted in the cantonal planning.

  The main advantages are therefore:

• equality of treatment of outpatient services and inpatient care in public-interest hospitals and private clinics, in the canton of residence and out of the canton, and of persons covered only by the basic insurance and persons who integrate this latter with a complementary insurance.
• the fact of pushing the financing bodies to overcome the sectorial perspective (outpatient medicine - hospital services /nursing homes and home care). The shared responsibility of insurers and cantons on the financing of all the basic services could in fact encourage the creation of integrated networks of care.

On the other hand the main disadvantages of the model are as follows:

• excessively high administrative costs (transaction costs) for the State would be caused if the latter decided to exercise serious control of the invoices and services.
• the real effectiveness of the reform as far as the control of expenditure is concerned depends, to a greater extent compared to the model proposed by the Federal Council, on the approval of two other reform bundles (the abolition of compulsory contracting and the promotion of the integrated networks of care).

Figure 1: Public share in total expenditure for basic health services (2002)

Actors and positions

Regierung
Federal Council	sehr unterstützend		stark dagegen
Cantons (health ministries as well as cantonal governments in general)	sehr unterstützend		stark dagegen
Parlament
Committee for Social Security and Health of the Council of States	sehr unterstützend		stark dagegen
Leistungserbringer
Hospitals (Swiss hospitals association)	sehr unterstützend		stark dagegen
Kostenträger
Health Insurers	sehr unterstützend		stark dagegen
current    previous

Influences in policy making and legislation

The legislative process is proving to be very complex and at present it is difficult to see the future outcome. Due to the particular aspects of the Swiss system several interests co-habit in each of the political actors involved in the decision-making process: belonging ideologically to one political group (right versus left), the institutional level at which the political activity is carried out (federal ambit versus cantonal ambit) and the proximity to different interest groups (medical associations, executive boards of a sickness fund etc.). The entanglement of these interests leads to the creation of alliances among groups who, although they pursue reform objectives which are diametrically opposed, give rise to coalitions which end up hindering any change whatsoever.

At present the greatest conflict is between the federal institutional level and the cantonal one. The committee of the upper house of the federal parliament, which approved the draft bill unanimously, includes politicians belonging to all the political parties; in the same way all the political parties are represented among those who oppose the bill in defense of the interests of the cantonal executives: the conference of cantonal governments, the conference of the cantonal directors of public health, the conference of the cantonal ministers of public finance.

The amendments which occurred in the plenary session of the Committee for Social Security and Health of the Council of States.

The initial draft was worked out by a sub-committee and presented to the whole committee in August (see reference [3] and [4]). In the plenary discussion the committee members inserted some last-minute amendments. In particular the document presented to the press on 30 August 2005 and submitted to the house of senators on 20 September 2005 differs from the original draft in some small details. In fact it:

• suggests delegating to the contractual partners (health insurers, cantons, associations of service providers) the task of establishing which statistics and which data are indispensable for the law to be applied (to ascertain effectiveness, appropriateness and economic performance of the services provided). Whereas the initial draft followed the bill of the Federal Council and clearly outlined the information which the service providers should have had to gather free of charge and put at the disposal of the federal administration (Offices of Public Health, of Price Control, of the Ombudsman, etc.) and of the cantons.
• suggests not resorting to an annual financial contribution from the health insurers for the gathering and evaluation of these data (however, a minority of the sub-committee, the members of the left-wing, stood back from this proposal and insisted on maintaining this contribution to be borne by the insurers in the text of law);
• states that co-payments of the insured (the franchise and the 10% co-insurance) will have to be deducted from the part of the expenditure covered by the insurers (and not from the total amount of the expenditure). In other words the share-part paid by the cantons would amount to 30 percent of the gross costs, while the share covered by the insurers by means of premiums would correspond to the difference between the remaining 70 percent and the co-payments of the insured.
• contemplates the possibility for the cantons to pay their own share-part directly to the service providers (amendment opposed by a minority, the members of the liberal party).

The changes which occurred during the discussion in the plenum of the committee would seem to benefit the health insurers and for this reason critical voices were to be heard who reproached the committee for being too close to the interests of the sickness funds.

The outcome of the session of the council of States of 20 September 2005

After an effective bit of lobbying, completed behind the scenes by the exponents of the cantonal governments and, not least, because of the threat of a referendum on the part of the cantons themselves, the senate decided to postpone the formal vote on the draft bill to the winter session. The committee itself, which had unanimously approved the text of law,  accepted the suspension of the vote, as declared by the president in her speech introducing the matter, in order to be able to start formal consultation with the cantons (see reference [1]). Thus with 36 votes against one the senators decided to refer the text of the bill back to the committee. It is important to remember that the upper house represents the so-called "council of the cantons" (two members for each canton) and that such strong divergences with the cantonal executives recently (on a bill on tax relief) had led to the launching of a referendum by the cantons; on that occasion the people clearly repudiated parliament's decisions.

After the introductory speech on the matter several senators took the floor; they wanted to underline the advantages and opportunities of the committee's bill. The only uncertainties expressed concerned the existence of some risks for the small hospitals in the country cantons (because of diseconomies of scale they could succumb in a more competitive market) and the importance of not separating the reform of hospital financing from that regarding risk adjustment mechanism (see report titled "Improving the risk adjustment formula" of the present round #6), about which the committee had started a consultation process and therefore decided to deal with the proposal during the winter session.

In the same way the Federal Minister, Pascal Couchepin, "sponsor" of the bill presented by the Federal Council, encouraged the senators to search for a dialogue with the cantons and with the federal government itself. The Minister's thoughts were clearly expressed in his speech closing the debate; the main aim of the law reforms is to contain health care costs; the reform strategy is by small steps, which means facing problems from a sectorial perspective, approving small bundles which can obtain the necessary political consensus, in order to modify the present rules of the game gradually. The minister's final objective seems crystal clear: a free market system in which the insurers become the single buyers of all health services (pure monist system), enjoy full liberty to contract (thus being able to operate an efficient selective contracting) and don't have to be burdened by the obligation of risk adjustment. According to the Minister the committee's proposal, though taking a further step in the right direction compared with the government bill, could in fact slow down the passage to a more radical system and thus undermine the main objective: expenditure control. Finally it is important to underline how this final horizon is completely unacceptable for many cantonal health ministers, allies nowadays of the Federal Council in opposing the bill worked out by the committee.

Clouds appear on the horizon

The apparent victory of the cantons, who have managed to have the vote put off for three months, could in the end prove useless (see reference [5]). In fact the differences of opinion between the members of the federal committee and the cantonal authorities seem to be too great for a compromise solution to be reached. The principles on which the cantons do not seem to be willing to yield are (see reference [6] and [7]):

• the separation of the reforms in progress in the hospital field from those concerning the outpatient sector;
• the fact of considering the cantonal contributions as targeted subsidies, to be used to contain expenditure in activities directly controlled by the public administration (in the case in hand the general wards of the hospitals). Eight years after the first sentence and three years after the second the cantons will still not accept the outcome of the jurisprudence of the federal court of insurances. The latter declared in fact in its decisions of December 1997 and November 2001 (see survey round #4, Hospital Financing Reform) that the "general ward" is an insurance concept to indicate the basic hospital services offered to all citizens and not a physical place in hospital.
• the need to separate the field of compulsory insurance, in which State planning plays an important role, from the private complementary insurance, in which it makes no sense to keep alive any form of state intervention. All those who decide to opt out of the universal system by buying integrative insurance cover would be cared for in a fully deregulated private sector. In this ambit, although part of the expenses is to be borne by the mandatory insurance, according to the cantons it would be convenient to promote privatization and the free market, independently of the ownership order of the hospitals.  

Not all the allies who make up the front of the cantons share these principles, however, and the alliance among the cantonal ministers belonging to various political groups would seem to stand mainly on the desire to avoid expenditure increases for the cantonal treasury and transferring  public money to private institutions (whether they be hospitals or health insurers) who do not offer sufficient guarantees from the point of view of governance and transparency.

If the senators decide to go ahead, therefore against the opinion of the cantons and the Federal Council (see reference [8]), a real institutional crisis would be caused. The fights would most probably shift to the battle field of direct democracy!

Legislative outcome

Hold

Actors and influence

Regierung
Federal Council	sehr groß		kein
Cantons (health ministries as well as cantonal governments in general)	sehr groß		kein
Parlament
Committee for Social Security and Health of the Council of States	sehr groß		kein
Leistungserbringer
Hospitals (Swiss hospitals association)	sehr groß		kein
Kostenträger
Health Insurers	sehr groß		kein
current    previous

Positions and Influences at a glance

Expected outcome

The discussion in progress shows many certainties and at least one question mark. This concerns the final destination the train of the health insurance reforms is moving towards and the exact time when the reforms will come into force.

The certainties are:

• the fact that the times necessary for decisions will be much longer than initially foreseen. The institutional battle in progress could encourage maintaining the status quo for several years to come. The proposal of the cantons seems to be to speed up those reform points which the parliament and cantons agree with (introduction of Swiss AP-DRG) and to take time (1-2 years) to negotiate the controversial aspects or to develop new proposals. -   it will become more and more difficult to keep alive in the legislation the compromise between market and planning, between competition and regulation, on which the present federal law on health insurance rests.
• without a reform of the federal constitution, in which the tasks and expenditure competences assigned to the Confederation and to the cantons are clarified according to the new situation (who decides has also to pay), any attempt at reform made by the federal parliament will be destined to meet with ferocious opposition from the cantons. 

Impact of this policy

Qualität	kaum Einfluss		starker Einfluss
Gerechtigkeit	System weniger gerecht		System gerechter
Kosteneffizienz	sehr gering		sehr hoch
current    previous

In the short run the effects of this reform on quality and costs might be quite insignificant.

In order to cut effectively into the expenditure and to improve appropriateness and quality of care it will be necessary to await the outcome of two other reform bills, the promotion of the integrated networks of care and the abolition of compulsory contracting. So as not to harden the front opposed to the bill the committee has thought it opportune not to tie the draft bill to the other two dossiers, providing for the chance to integrate them in any case at a later date, as if they were successive pieces of the same mosaic.

The only certain effect is therefore linked to the equity of financing; with respect to the Federal Council's proposal the change would have less impact on the premiums and more on taxation. Moreover the committee's proposal to anchor the cantonal contribution to the whole of the costs (30 percent) would seem able to guarantee a financing share to be borne by taxation equal to the present one in time.

On the other hand in the Federal Council's bill (50 percent of the costs of hospital stays to be borne by the cantons) this share might even diminish as years go by, if (as is quite probable) technological progress moved part of the health costs out of hospital.

References

Sources of Information

1. Wortprotokoll des Ständerates, Herbstsession, Zweite Sitzung (20.09.05-08h00), Bundesgesetz über die Krankenversicherung. Teilrevision.Spitalfinanzierung, Amtliches Bulletin. www.parlament.ch/ab/frameset/d/s/4709/204754/d_s_4709_204754_204755.htm
2. Bundesamt für Gesundheit (2005), Statistik der obligatorischen Krankenversicherung 2003 und 2004. www.bag.admin.ch/kv/statistik/d/2005/KV_2003_DE_v030205.pdf
3. Krankenversicherungsgesetz. Teilrevision (Spitalfinanzierung). Proposals by the Committee for Social Security and Health of the Council of States, 30.08.2005.
4. "Echte Reform für die Krankenversicherung. Ständeratskommission widersetzt sich Pascal Couchepin", NZZ Online (31.08.2005). www.nzz.ch/2005/08/31/il/articleD3N2Y.html
5. "Zweite Chance für Gesundheitsdirektoren", NZZ Online (21.09.2005). www.nzz.ch/2005/09/21/il/kommentarD5Q25.html
6. Council of the Swiss cantonal health ministries, Medienmitteilung vom 30.8.2005 in Sachen Finanzierungsmodell der SGK des Ständerates. www.gdk-cds.ch/fileadmin/pdf/Gesundheitsoekonomie/KVG-Revision/Medienmitteilung_200508.pdf
7. Council of the Swiss cantonal health ministries, Replik der GSK-SDK auf das monistische Finanzierungsmodell der SGK des Ständerates (23.9.2005). www.gdk-cds.ch/fileadmin/pdf/Gesundheitsoekonomie/KVG-Revision/Replik_SGK-S-Modell-20050923-d.pdf
8. Eidgenössisches Departement des Innern, KVG-Revision: Der Bundesrat hält an seinen Vorschlägen zur Spitalfinanzierung und zum Risikoausgleich fest - Medienmitteilung vom 7. September 2005. www.admin.ch/cp/d/431ec07a_1@fwsrvg.html

Reform formerly reported in

Hospital financing reform (?dual-fixed?) Process Stages: Gesetzgebung

Author/s and/or contributors to this survey

Luca Crivelli (proof reading by Iva Bolgiani and Mary Ries)

Empfohlene Zitierweise für diesen Online-Artikel:

Luca Crivelli (proof reading by Iva Bolgiani and Mary Ries). "Revolution of hospital financing reform plan". Health Policy Monitor, October 2005. Available at http://www.hpm.org/survey/ch/a6/4