Hospital 2007

• Abstract
• Purpose of health policy or idea
• Characteristics of this policy
• Political and economic background
• Purpose and process analysis
• Expected outcome
• References

Featured in half-yearly report: Health Policy Developments 9

Abstract

In 2003, the government launched an ambitious reform plan, known as “Hôpital 2007” for improving overall efficiency and management within the hospital sector. The measures introduced not only modified the mode of financing public and private hospitals but also the rules of hospital sector planning and the governance of public hospitals.

Purpose of health policy or idea

The measures introduced aimed on the one hand to improve overall efficiency and organisation of all healthcare facilities and on the other to modernise the organisational and management structures within public hospitals by giving them more autonomy.

Main points

Main objectives

The plan had three major planks:

1. Investment in healthcare facilities and decentralisation. The first phase of the reforms was the modernisation of hospitals by boosting investment to improve their general infrastructure. The plan called for 6 billion € from the central government in the form of direct subsidies and the compensation for debt servicing, while hospitals are also asked to self-finance some of their expenditure.

In parallel, the organisation structure and planning of healthcare facilities have been simplified. The sanitary chart (an index of local health needs) which used to control, among other things, the number of beds and medical equipment authorised for each hospital has been discontinued. Regulatory powers have been shifted from the central level to the regions by reinforcing the role of regional hospital agencies in controlling hospital activities. The regional organisation plans (SROS - Schéma régional d'organisation sanitaire) which placed an emphasis on the demographic and epidemiological characteristics of each region's population became the only tool used to guide hospital planning.

2. Introduction of payment by results (T2A- Tarification à l'activité). The most important measure was the introduction of an activity-based payment both for public and private hospitals (see issue 5, 2005). Previously, public and private hospitals were paid under two different schemes. The public and most private not-for-profit hospitals had global budgets based on historical costs, while private for profit hospitals had an itemised billing system with different components.

Since January 2004, some part of the revenues of all public sector acute care hospitals (including private not-for-profit) were financed through an activity based scheme (T2A). A payment is made for each patient treated in acute care (rehabilitative, long-term and psychiatric care are not as yet included) based on the Groupes Homogène de Séjour (GHS - the equivalent of diagnosis related groups) prices for the public sector. The activity-based element of the payment increases gradually each year: 10% in 2004, 25% in 2005, 35% in 2006 with an objective of achieving 100% in 2012.

Private hospitals on the other hand have been paid entirely using the new case-mix based system since March 1, 2005. However, a transition period was allowed where "national prices" have been adjusted, first taking into account the prices for the private sector, and second using a transition coefficient for each provider based on its own historical costs/prices. The objective is to harmonise the prices for all providers (public and private) by 2012.

3. A new governance structure for public hospitals. The last phase of the reform has been to give public hospitals the flexibility they need to deal with this new financial environment. The idea was to give more autonomy to medical staff over managerial decisions. The board of directors, consisting of representatives from local and regional governments, employee representatives and qualified individuals, is now responsible for strategic governance, assessment and control. Hospitals are also encouraged to create large clinical departments (hubs of medical excellence) in order to organise their medical activities in a more efficient way. These centres, under the responsibility of a doctor, will enjoy organisational and administrative autonomy, being subject to an internal contract with the hospital management. 

Type of incentives

Both financial and regulatory.

Groups affected

Public and private hospitals, Social security funds, Regional hospital agencies

Degree of Innovation	traditional		innovative
Degree of Controversy	consensual		highly controversial
Structural or Systemic Impact	marginal		fundamental
Public Visibility	very low		very high
Transferability	strongly system-dependent		system-neutral

Political and economic background

The hospital sector has been under increasing pressure in recent years to improve efficiency as it absorbs almost half of the total health care expenditure. Moreover, the sector's funding arrangements and organisational structure were complex with little transparency as to the efficiency and productivity of individual health care facilities. All the stakeholders agreed on the necessity of major reforms introducing new funding and management rules.

Another challenge for the hospital sector has been the deterioration in hospital facilities and buildings. In the past 20 years (since the introduction of global budgets) reinvestment in hospital maintenance has been penalised by the pressure to reduce expenditure. The obsolescence rate (accumulated depreciation divided by gross assets) reached 55% at the end 2001. 60% of university hospitals failed to meet safety standards on between 25% and 75% of their surface area. Therefore, both buildings and equipments are in need of upgrading, especially given the increasingly more stringent safety/quality regulations and greater competition from private clinics.

Purpose and process analysis

Current Process Stages

	Idea	Pilot	Policy Paper	Legislation	Implementation	Evaluation	Change
Implemented in this survey?

Origins of health policy idea

The reform plan was presented by the current government right after its election in 2002. However, the ideas were not new; several previous governments have prepared the ground for reforms in these directions (more autonomy in management and introduction of activity based payment). In a sense this government had the pragmatism and the positive political climate to implement the already existing ideas. Several pilot projects and experimentations have been implemented as early as 2003 in a number of volunteer hospitals.

Initiators of idea/main actors

• Government

Stakeholder positions

At the beginning both public and private hospitals and all of the medical organisations involved agreed with the major principles of the reform and the proposed new method of financing.

The government stated that "equal treatment of the public and the private sector" was a major objective of the reform. Ironically the word "competition" was hardly ever mentioned in this context, even though implicitly one of the rationales for the reform was to foster efficiency by increasing competition within the hospital sector. Increasingly, however, attention is being paid to the implications of a unique  payment system with one price and limits of the new hospital governance to deal with this new financial environment. The initial consensus on the need for more transparency and efficiency has since been peppered by some scepticism and questions concerning issues of implementation.

Actors and positions

Government
Ministry of health	very supportive		strongly opposed
Social security	very supportive		strongly opposed
Regional hospital agengies	very supportive		strongly opposed
Public hospitals	very supportive		strongly opposed
Private hospitals	very supportive		strongly opposed

Influences in policy making and legislation

The first phase of the reform was launched with the edict of September 2003 (n°2003-850) which introduced 9 groups of measures to simplify the organisation and functioning of the hospital system. In particular, this edict increased the regulatory powers of Regional hospital agencies for controlling both public and private hospitals, simplified the rules of planning in hospital sector and introduced a multi-year commitment plan to generate hospital investment of 10 billion € until 2007.

At the end of 2003, parliament modified the law concerning the annual funding of social security (Loi° 2003-1199 of 18 December) to integrate the activity based payment in the 2004 budget.

Finally in May 2005, the government passed a ruling (Ordinance 2005-406 of May 2nd) aimed at reforming public hospital governance. Specifically the role of the hospital director and the board of the directors have been redefined including more managerial responsibilities.

Legislative outcome

success

Actors and influence

Government
Ministry of health	very strong		none
Social security	very strong		none
Regional hospital agengies	very strong		none
Public hospitals	very strong		none
Private hospitals	very strong		none

Positions and Influences at a glance

Adoption and implementation

See below, see also issue 2005 (5) Hospital payment reform.

Expected outcome

The implementation of Hopital 2007, especially the introduction of a new financing regime for hospitals in France, will result in significant change in hospital behaviour and resource allocation. While the core measures introduced by the reforms are based on sound principles, there are a number of issues that need to be resolved if their expected impact is to be achieved.

First, concerning the modernisation of hospitals, it is true that a lot of effort has focused on improving existing premises with certain hospitals being regrouped or upgraded. According to figures from the Ministry of health there have been several hundred regroupings (mostly small facilities) or mergers of activities in the past 5 years. The investment expenditure has doubled between 2003 and 2005, reaching 8% of the total expenditure in 2005. The most vulnerable establishments in the private sector have disappeared or been absorbed by more solid ones. Troubled public hospitals have undergone more complex restructuring.  The Regional Health Authorities (RHAs) have specific budget resources for financing these restructuring programs. However there are some doubts about the financial sustainability of some of these investments [3] since restructuring sometimes generates additional costs (the larger the hospital, the higher the co-ordination costs) and technical maintenance costs could rise sharply because new buildings are more sophisticated and would require new technical equipment and information systems which have been neglected to some extent.

 

Second, the introduction of an activity based payment (T2A) risks creating inflationary pressures with public hospitals growing to increase their revenues. In order to control hospital costs the state put into place two mechanisms: first, to control activity volumes; and second, to control prices. 

To control the hospital production volumes, there are two levers. First, the RHAs have the power to grant, withdraw or suspend authorisations for public hospitals and healthcare professionals to practice. Second, under the new generation of regional health plans, the RHAs have to set quantified objectives determining the location of services and costly equipment as well as a framework of activity including length of stays, number of visits and surgical procedures. The RHAs conclude multi-year contracts with hospitals, defining objectives and means, such that hospitals will only get the funding if they achieve the agreed objectives.

As this new system is still being negotiated, it is not possible to anticipate how effective it will be. While it does not seem realistic to expect hospitals to refuse performing a necessary intervention on the grounds that the ceiling has been reached, it is possible that setting objectives for certain type of procedures will restrain medical and surgical procedures that are not defined as "priority". 

At the macro level, there are national and regional level expenditure targets for social security concerning acute care expenditure (with separate targets for the public and private sectors). It was announced (in a rather obscure way at the beginning) that if the actual growth in volume of activity produced exceeded the target, DRG prices would subsequently go down. In 2005, both public and private sectors exceeded their targets (by more than 3.5%) costing an additional €650 million to the health insurance fund. The government decided to reduce GHS prices by 1% in 2006, as the rate of increase in activity is already higher than the targets set.

This type of regulatory mechanism is problematic. First, it introduces an element of uncertainty which makes it difficult for hospitals to foresee their revenues and develop a multi-year financial plan as required by the new budget procedure. Second, adjusting prices depending on the volume of activity assumes constant productivity gains without taking into account the type of activity produced. When this is not the case, depending on the impact of new technologies on costs, there is a risk of setting prices that are (progressively) not linked to costs at all. This might encourage health care facilities to concentrate on certain procedures and neglect the treatment of other pathologies.  

 

Third, in terms of new hospital governance, while public hospitals now have obtained some freedom over their internal organisation (number of centres, departments, etc.), their autonomy is still strictly limited in other ways. The boards and executives of hospitals are still under the control of the Ministry of Health, and the RHAs. Resource allocation is still the result of a mixture of predefined rules and bureaucratic negotiations. Most of the management rules concerning recruitment, investment strategy and the use of new interventions are also set through this bureaucracy. One striking example of this is the fact that hospital managers still do not have the power to layoff staff, whether medical or non medical.

More generally, increasing competition between public and private hospitals is a major issue. The government's ultimate objective is to achieve a gradual convergence of the conditions under which hospital care is dispensed and financed in public and private sector. Increasingly public and private facilities are competing on an equal footing as the market regulation and access conditions are the same for all (through authorisations which are transferable from the public to private sector).   

However, the new system means a higher risk for public hospitals and potentially can put them in difficulty. Public hospital care is not a supply-side market, since it responds to demand of the local or regional level on which public hospitals have no control. Their financial health will depend on their ability to control costs rather than to manage the range of healthcare services offered. The private sector has more flexibility and ability to specialise; indeed their activities are highly concentrated on surgery, maternity care and some highly technical specialties unlike public facilities that have to provide a comprehensive package of care (obligation of "service publique"). It is not clear yet how the government will deal with those public hospitals which are struggling to expend their services beyond those which are shunned by the private sector because of their poor returns.

Impact of this policy

Quality of Health Care Services	marginal		fundamental
Level of Equity	system less equitable		system more equitable
Cost Efficiency	very low		very high

For the moment, it is not possible to assees the impact of the reforms on quality and equity. But the number of hospital merges might have a negative impact on acess to hospital care in some areas. 

References

Sources of Information

 

Ministry of health dedicated site for Plan hopital 2007:

http://www.sante.gouv.fr/htm/dossiers/hopital2007/

http://www.cadredesante.com

Or, Zeynep; De Pouvourville, G. "French hospital reforms : a new era of public-private competition?". Eurohealth, 2006, vol.12, n°3, 21-23. Available at the website of LSE : www.lse.ac.uk/

Fitch Ratings, Post-reform solvency of French public hospitals, december 2006. www.fitchratings.com

 

Reform formerly reported in

Reform of Hospital Payment System Process Stages: Policy Paper

Hospital payment reform Process Stages: Implementation

Author/s and/or contributors to this survey

Zeynep Or

http://www.irdes.fr/EspaceAnglais/Staff/Or.html

Suggested citation for this online article

Zeynep Or. "Hospital 2007". Health Policy Monitor, 10/04/2007. Available at http://www.hpm.org/survey/fr/a9/1