Innovative strategies in governing public hospitals

Eurohealth incorporating Euro Observer — Vol.19 | No.1 | 2013 3Eurohealth OBSERVER INNOVATIVE STRATEGIES IN GOVERNING PUBLIC HOSPITALS By: Antonio Durán and Richard B. Saltman Summary: European public hospitals have undergone a process of change by which they remain publicly-owned but use incentives and follow practices similar to those in the private sector. Governance theory explains the crowded policy process and complex mosaic of decision-making relationships among different actors within the hospital sector, often with blurred boundaries. A central element in those reforms has been establishing some autonomy, which is necessary to confront challenges and to restrain the interference of local and regional political actors in decision-making. Institutional, financial and accountability arrangements as well as decision-making capacity versus responsibility are core variables that capture semi- autonomous governance. Keywords: Hospital Governance, Hospital Autonomy, Europe, Czech Republic, England, Estonia, Israel, Netherlands, Norway, Portugal, Spain Antonio Duran is CEO of Técnicas de Salud, a health policy and systems consultancy firm based in Seville, Spain; Richard B. Saltman is Professor of Health Policy and Management at the Rollins School of Public Health, Emory University, Atlanta, USA. Email: aduran@tecsalud.com Note: This article is based on a study completed in 2011 1. In this article we consider the central elements of governance theory that can be applied to publicly operated hospitals, and then map innovative hospital governance models in selected countries of the World Health Organization (WHO) European region. Like other English language terms (e.g. stewardship and accountability), governance does not readily translate into different national contexts; it designates the blurring of the boundaries between the public and private sectors and the receding capacity of government (national, regional and local) to directly manage provider institutions as the number of actors in various policy arenas has multiplied. In our recent study 1 hospital governance was defined as: A set of processes and tools related to decision-making in steering the totality of its institutional activity, influencing most major aspects of organisational behaviour and recognising the complex relationships between multiple stakeholders. Its scope ranges from normative values (equity, ethics) to access, quality, patient responsiveness and patient safety dimensions. It also incorporates political, financial, managerial, as well as daily operational issues. Three factors drive change in public hospital governance: (i) technological improvement in clinical and informational capacity among hospitals; (ii) growing patient expectations regarding quality, safety, responsiveness and choice of providers; and (iii) growing political pressures on public authorities to restructure traditional command and control models. 1 Eurohealth OBSERVER Eurohealth incorporating Euro Observer — Vol.19 | No.1 | 2013 4 Institutional evolution of hospitals Twentieth century European health systems concentrated medical resources and professionals in purpose-specific buildings looking for: (i) economies of scale; (ii) economies of reach/scope; and (iii) facilitated professional training and the diffusion of technological knowledge. 2 Hospitals operated within the prevailing Weberian bureaucratic model of public administration; as typical administrative arms of government, their staff were public employees and received their funding from public budgets, having to return any operating surplus at the end of the year. ‘‘ A central element has been establishing some degree of institutional autonomy More flexible models of hospital governance appeared in the late 1980s, in line with “New Public Administration” models that transferred some decision- making control to provider organisations through a “planned market” based on “public competition”, 3 creating a new “internal market” in the hospital sector, 4 or by introducing a “quasi-market”. 5 Efficiency and quality concerns along with patient demands combined to produce less rigid governance strategies within tax- funded health care systems. 6 The impact of the electronic revolution and globalisation on European companies’ finances (and, via revenue from taxes, on the financial capacity of governmental owners of public hospitals) has now altered the fiscal picture. As these structural changes have taken hold, public hospitals in both western and central Europe have undergone a process of “autonomisation and corporatisation”. 7 These hospitals remain publicly-owned but, like private companies, use incentive systems and have quasi-independent supervisory boards that do not require direct political approval. Doctors and nurses are hired on short term contracts, as are managers with professional skills (particularly in northern European models). Although hospitals still receive their funding from public revenue, some form of purchaser–provider split separates the public funder from public providers, and funding follows a case-based formula (typically adjusted diagnosis-related groups – DRGs). Capital is sometimes raised through the private sector. A framework for assessing governance in modern hospitals Government, boards, staff and patient groups create a complex mosaic of decision-making relationships among and between different actors, often linked to decisions devolved to regional or local governments or transferred upwards to European Union level institutions. Hospital governance aims at ensuring high levels of service quality and responsiveness while maximising the return from available resources within a given regulatory framework (frequently related to national history, culture and context). In practice, a specific institutional-level linkage of governance strategies to clinical, financial and patient-related outcomes remains highly qualitative in nature. While useful quantitative performance measures are currently being developed, they are at an early stage of refinement. 8 A central element in recent hospital reforms has been establishing some degree of institutional autonomy which is necessary to confront challenges and to restrain the interference of local and regional political actors. For all practical purposes, of course, no publicly-owned hospital is, or can ever expect to be, fully autonomous. The most that public hospitals can aspire to be is semi- autonomous, as a recognised, legitimate status granted by the owners to make institutional-level decisions, even if this may not be legally guaranteed and could be changed should the political environment shift. Semi-autonomy is thus different from informal hospital efforts to evade constraining and/or unpleasant formal controls. The argument in favour of creating semi-autonomous hospitals has been exhaustively documented. 9 10 Semi- autonomous governance can be captured through four core variables: a. Institutional arrangements (legal form and objectives, room for decisions, relations with stakeholders). Foundations, corporatised public companies, public entities with delegated management and other “new” types of institution include mechanisms and tools to help hospitals strive for a desired set of objectives (economic, social, political, etc.) with unions, professional organisations, patient organisations, citizen groups participating in decisions regarding clinical services, locations, incentives/ sanctions, and so on. b. Financial arrangements (sources, constraints, conditions of capital investments and operational expenses, ability to retain surpluses and incur debt). European publicly-owned hospitals need space in their decisions in terms of finding additional sources of funds and arranging loans to respond to the demands relating to patient needs, professional preferences and the concerns of other stakeholders. c. Accountability arrangements (role, size, composition, appointments, citizen and patient involvement and participation, reporting). Financial, performance and political/democratic accountability make governance more complicated than traditional management in a context of improved “intelligence” and more robust information systems. Political bodies and authorities also play a complex role here. d. Decision-making capacity versus responsibility (room to adjust to unexpected trends, freedom from political interference, power sharing with clinicians, flexibility in internal monitoring, follow-up and evaluation). The acid test in setting up new power relationships is to what extent the high- level goals and politics give hospitals Eurohealth OBSERVER Eurohealth incorporating Euro Observer — Vol.19 | No.1 | 2013 5 sufficient room to adjust to unexpected events, free from undue political interference at ground level. Mapping new governance models Hospitals in the Czech Republic, England, Estonia, Israel, Norway, Portugal and Spain have redesigned publicly- owned hospital governance models with a considerable degree of decision- making autonomy. 1 While ownership of public hospitals in the Netherlands was transformed to non-profit-making foundations in 1991, they serve as a reference point for evaluating the public models (while remaining socially and politically accountable). A spectrum of new configurations can be seen (see Table 1). In terms of the four variables of semi- autonomous governance, the following observations may be made. Institutional dimension Public hospitals usually become semi- autonomous as part of a governmental decision, typically national, but in some cases regional (e.g. Spain). Models in northern and central Europe range from “trusts” to “foundations”, “state enterprises” and “joint-stock companies”. There are six Iberian models with differing degrees of autonomy. The legal status in the Netherlands is seen to be not entirely stable. In Israel, public hospitals have de facto rather than institutional autonomy: a national government agreement allows outpatient clinics to operate as “Health Corporations”. There is also variation in “ownership”. In all countries except the Netherlands, owners are typically national, regional or municipal governments (in Estonia, a combination of national and municipal governments). Dutch hospitals are owned by a domestically chartered foundation. In Israel, one private non-profit-making hospital is owned by a New York foundation and another by an Israeli non- profit-making sickness fund (now called “health funds”). Governments often reserve the right to intervene as they believe appropriate. Managers make decisions regarding structural parameters (service configuration, size, degree of focus on outpatient services) yet for major questions, regional (Norway, Spain and England) or central governments typically maintain leverage to various degrees. For example, in the Netherlands, the Minister of Health, Welfare and Sport intervened when one hospital approached bankruptcy, despite its private status, out of concern for patients’ continuity of care. For decisions relating to the level of clinical services offered (district/secondary/tertiary), there is additional input by insurers whenever sickness funds play an important role in financing (Czech Republic and sickness fund-owned hospitals in Israel). Medical specialists are mostly salaried, with pay levels either controlled by national agreement (government and sickness fund-owned hospitals; private non-profit hospitals in Israel) or subject to additional negotiation at hospital level (several models in Spain). Some models do shift physicians to independent contractors, with pay negotiated for each specialist (limited liability and joint-stock companies in Estonia and the Czech Republic; sickness fund-owned private hospitals in Israel; private non-profit institutions in the Netherlands). Labour unions remain relatively important in England, Norway, Portugal and Spain, are less significant in Israel and have little leverage in the Czech Republic, Estonia or the Netherlands. Financing dimension Investment capital-related decisions are still dominated by centralised models. For large equipment, renovations and new buildings, capital comes from owner investments and/or national government, hospital funds and/or bank loans. EU grants (Estonia, Portugal) and charities (government and sickness fund-owned hospitals in Israel) play significant roles. In hospitals with sickness funds as major owners, shareholders also provide funds. The process of capital investment is usually initiated by the Management Board and then approved by the Supervisory Board (and sometimes by the government). In Portuguese PEEHs national government approval is needed for amounts beyond 2% of the hospital’s statutory capital. For operating capital (day-to-day expenses: staff payroll, supplies and overheads such as heat and light), activity-based state financing (Portugal, Norway, Foundations in Spain), and insurance companies when applicable (Czech Republic) are key. The board generally has a prominent role. Hospitals are moving away from Table 1: New public hospital governance models Country Hospital governance model Czech Republic Limited liability companies Joint-stock companies England Self-governing trusts Foundation trusts Estonia Joint-stock companies Foundations The Netherlands Hospital Governance model: Foundations (Stichting) Norway State enterprises Portugal Public enterprise entity hospitals (PEEHs) Spain Public Health Care Foundations Public Health Care Companies (Empresas Públicas Sanitarias) Public Health Care Foundations (Fundaciones Públicas Sanitarias) Consortia (Consorcios) Foundations (Fundaciones) Administrative Concessions (Concesiones Administrativas) Sweden Public-stock corporations Source: 1 Eurohealth OBSERVER Eurohealth incorporating Euro Observer — Vol.19 | No.1 | 2013 6 global budgets towards case-mix-based funding. In England, Foundation Trust hospitals have more control over assets, a certain ability to raise finances and more accountability. The situation could become more complex if hospitals are allowed to attract investment partners, property agencies or private companies in new partnerships, similar to the Private Finance Initiative (PFI) in the United Kingdom, or the Alzira Hospital model in Spain. ‘‘ Many models set performance-related incentivesIn the Netherlands, price competition for operating income is complemented by “yardstick competition”, using maximum tariffs centrally set for specific services, allowing efficient hospitals and independent treatment centres (ITCs) to retain surplus revenue. Norwegian Regional Health Enterprises and all Estonian semi-autonomous hospitals also retain financial surpluses while Czech semi-budgetary organisations and Spanish Public Health Care Companies (Empresa Pública Sanitaria) cannot. Other hospitals may retain surpluses, conditional upon the decision of the owner (Israeli sickness fund-owned hospitals) or regional governments (joint-stock companies and limited liability companies in the Czech Republic). Administrative Concession hospitals in Spain can retain surpluses up to a 7.5% annual profit rate. England’s Self-Governing Trusts can retain surpluses but are expected to break even over a three-year period. Accountability framework In most new models, appointment to the Supervisory Board is carried out by political authorities, at local municipal (Estonia), regional (Spain, Czech Republic) or national (Norway, England, Portugal) level. In the Netherlands, the Supervisory Board is self-renewing and without political input. English Foundation Trusts vote for governors, who in turn appoint the head of the Supervisory Board. The few privatised hospitals in the Czech Republic, several new for-profit hospitals recently established in Estonia, and ministry-owned hospitals in Israel, have no board–they are managed by CEOs. Non-profit private, sickness fund-owned and profit-making hospitals have boards not appointed by politicians. Supervisory Board size varies between five and six members (semi-budgetary organisations in the Czech Republic, Dutch boards, PEEHs in Portugal, Public Health Care Companies in Spain) to ten or more (England, Norway) with variable physician presence. Politicians are typically placed in several models to speak for the interests of the body they represent. In the Public Health Care Company model in Andalusia, one board member represents the Regional Ministry of Health and a second the Regional Ministry of Finance, whereas in Estonia the politician members represent local government. The Supervisory Board works through the hospital’s senior managers, often appointing and supervising the Management/Executive Board (in Estonian Foundations, only its head, who then appoints other members). Most Supervisory Boards typically provide guidance on budget, finance, new investment and capital issues and approve the strategic and operating proposals put forward by the hospital’s Executive Board and/or the hospital CEO. Quality of care, patient safety, responsiveness and patient satisfaction, as well as monitoring and evaluation, are more the concern of CEOs and the Executive Boards. Management Boards /Boards of Directors set missions and strategy, advise on management, evaluate performance, exercise oversight and control, and obtain community support/resources. Although direct citizen participation is restricted, members of English Foundation Trusts can vote for representatives on the Board of Governors. Several models include ombudsmen and spokespersons, and/or publishing minutes of board meetings, which must be open in the Norwegian model and in Self-governing Trusts in England. In the sickness fund-owned hospitals in Israel, sickness fund members and Labour Federation members have an indirect voice through their organisations. Decision-making capacity on operational issues All hospitals in this study hire and fire employees (the only exception being the Dutch private non-profit-making hospitals, which have self-employed physicians working on contract). Management can also make decisions on numbers and functions of chiefs of service (again with the exception of the Netherlands). Inclusion of new treatments and the setting up of clinical trials depend on different combinations of decisions by hospital boards, individual physicians and departments, as well as governments. Many models (except Norwegian hospitals, where most employees are salaried) set performance-related incentives affecting staff income beyond labour union veto powers. English hospitals are entirely (Foundation Trusts) or partly (Self-governing Trusts) free to set such incentives. Outside England, Estonia has the largest share of income affected by incentivisation (25%), above 8% for Portuguese PEEHs and Spanish Consortia and 15% in Spanish Public Health Care Companies for clinical staff, although for administrative staff it may be up to 40% of their salary. In Czech semi- budgetary organisations, governmental decrees set basic salary but hospitals can allocate bonuses. Incentive systems are defined by consensus (Portuguese PEEHs, Israeli private non-profit-making hospitals), or agreed with the individual staff members (Israeli government-owned hospitals). Data collection requirements for national/ regional governments are minimal, such as patient flows (all Israeli hospitals), monthly reporting on waiting lists and three-monthly financial situation reporting (Consortia hospitals in Spain). Management/Executive Boards decide on evaluation of achievements, with an important role for department heads, especially in the Netherlands and in all but the private Israeli models. However, performance indicators in Israel and Eurohealth OBSERVER Eurohealth incorporating Euro Observer — Vol.19 | No.1 | 2013 7 England remain unpublished and are not shared internally while Estonian joint-stock companies and foundations share performance data and apply them voluntarily for payment purposes. In Spain, Public Health Care Companies apply them for payment purposes and Czech limited liability companies use them through full-fledged internal benchmarking systems. What can and cannot be concluded What are the advantages and disadvantages of developing these new hospital governance processes and tools? Several observations can be made. First, a continuum of hospital semi- autonomy in practice can be constructed (see Figure 1). Although all hospitals, private and publicly-owned, must follow a substantial number of nationally established clinical, environmental, labour-related, financial and also political policies, 11 private institutions typically do have considerable decision-making autonomy with regard to operational issues. However, ample studies appear to demonstrate that profit- making hospitals are not more clinically effective than their non-profit-making private counterparts. 12 In contrast, a United Kingdom review 13 argues that public hospitals have significantly worse management practices than private hospitals, although ratings among publicly- owned hospitals were relatively high for Foundation Trusts (hospitals with greater autonomy), larger hospitals, and in settings with more clinically expert managers. Overall, the boundaries between the public and private health sectors in Europe have become increasingly blurred. The critical question of how to find the correct balance between decision-making autonomy and political accountability is not easy to define. The answer lies obscured beneath the weight of academic evidence and experience, the expectations of the patient population, the nature of the new model and, of course, the expectations, behaviour and fiscal situation within the municipal, regional or national governments concerned. The challenge in governance is to establish “clear loci of responsibility, enough information and appropriate sanctions”. 14 Semi-autonomous hospitals are popular with patients, and there is no concerted move by political actors to abolish them. The degree of decision-making autonomy, as well as the tipping point at which governments begin to regret such grants and reassert their central authority, inevitably differ based on national political conditions and the prevailing cultural expectations within each country. For example, in Andalusia, Spain, Public Health Care Company hospitals are no longer allowed (since 2008) to retain surpluses while in Norway, efforts by hospital management to close a rural satellite hospital centre (Roros) were blocked by the Ministry of Health. The considerable variation between (and within) countries provides a natural laboratory to assess the overall benefits of different models. In this context, the most recent changes in hospital maps in Europe are mostly mergers and organisational re-structuring, such as the Helsinki and Uusimaa University Hospital (merging 23 hospitals), the merging of the campuses of Huddinge University Hospital and Karolinska Hospital in Stockholm or the Sheffield Teaching Hospital (merging five hospitals). This pattern of institutional consolidation ratifies our conviction that existing institutional arrangements will continue to undergo major changes. Practically speaking, the process of defining and steering autonomy in public hospitals operates in a terrain of complex incentives that can create a treacherous environment for the design and implementation of effective reforms. Given the likelihood that in twenty years hospitals will differ considerably from the institutions of today, efforts to formally restructure governance arrangements towards a “public firm” or other more autonomous arrangements should not reduce the ability of these institutions to respond appropriately to their changing environment. References 1 Saltman RB, Duran A, DuBois HFW, eds. Governing Public Hospitals: Reform Strategies and the Movement towards Institutional Autonomy. Brussels: European Observatory on Health Systems and Policies, 2011. 2 Duran A. Los hospitales del futuro [The hospitals of the future]. Eidon, Journal of the Institute of Health Sciences 2009; 29 March, Special Issue. 3 Saltman RB, von Otter C. Re-vitalizing Public Health Care Systems: A Proposal for Public Competition in Sweden. Health Policy 1987;7:21–40. Figure 1: Continuum of hospital governance strategies Source: 1 . Norway Netherlands Portugal Israel Estonia Czech Republic England Spain Restricted Semi-Autonomy Considerable Semi-Autonomy Maximal Semi-Autonomy Command and Control Fully Independent Private Eurohealth OBSERVER Eurohealth incorporating Euro Observer — Vol.19 | No.1 | 2013 8 4 Enthoven A. Reflections on the NHS. London: Nuffield Trust, 1985. 5 Le Grand J, Bartlett W, eds. Quasi-Markets and Social Policy. Basingstoke, UK: MacMillan Press, 1993. 6 Saltman RB, Figueras J. European Health Care Reform: Analysis of Current Strategies. Copenhagen: WHO Regional Office for Europe, 1997. 7 Preker AS, Harding A. Innovations in Health Service Delivery: The Corporatization of Public Hospitals. Washington DC: The World Bank, 2003. 8 Smith P, Mossialos E, Leatherman S, Papanicolas I. Performance Measurement for Health System Improvement: Experiences, Challenges and Prospects. Cambridge: Cambridge University Press, 2010. 9 Saltman RB, von Otter C, eds. Implementing Planned Markets: Balancing Social and Economic Responsibility. Buckingham, UK: Open University Press, 1995. 10 Figueras J, Robinson R, Jakubowski E, eds. Purchasing to Improve Health Systems Performance. Maidenhead, UK: Open University Press/McGraw- Hill, 2005. 11 Saltman RB, Busse R. Balancing regulation and entrepreneurialism in Europe’s health sector: theory and practice. In: RB. Saltman, R. Busse, E. Mossialos, eds, Regulating Entrepreneurial Behaviour in European Health Systems. Buckingham, UK: Open University Press, 2002. 12 Jeurissen P. For Profit Hospitals: A comparative and longitudinal study of the for-profit hospital sector in four Western countries. (Doctoral dissertation). Rotterdam: Erasmus University, 2010. 13 Bloom N, Homkes R, Sadun R, Van Reenen J. Why good practices really matter in healthcare, 17 December 2010. Available at: http:www.voxeu.org 14 Tuohy CH. Agency, Contract and Governance: Shifting Shapes of Accountability in the Health Care Arena. Journal of Health Politics, Policy and Law 2003;28(2–3):195–215. SPAIN’S HOSPITAL AUTONOMY: MUDDLING THROUGH THE ECONOMIC CRISIS By: Arturo Álvarez and Antonio Durán Summary: The evolution of the various models of autonomous hospitals in Spain (public health care companies, public health care foundations, foundations, consortia and administrative concessions) under conditions of severe economic recession and drastic public spending cuts, has been uneven. While the sustainability of the health care system has entered public debate, it seems that many innovative features of hospital self-governance models have been gradually eroded by centralising forces at regional level. The model that has attracted most interest is the Alzira-type of Administrative Concession, perhaps given that the political party that introduced it is currently in power. The most remarkable finding overall, however, is the near absence of systematic comparisons of hospital performance, an issue that instead, is obscured by ideological discussions (the information exists but it is not made public). Keywords: Hospital Governance, Spain, Hospital Autonomy, Economic Crisis, Alzira Arturo Álvarez is Senior Consultant and Antonio Durán is CEO of Técnicas de Salud, a health policy and systems consultancy firm based in Seville, Spain. Email: aduran@tecsalud.com Five characters … without a script Historically, the development of various hospital governance models in Spain has been the result of societal and state realignments under post-Franco politics. 1 The transition from a dictatorship to a democratic regime, configured in the 1978 Constitution, established a decentralised state with a great deal of power devolved to the seventeen autonomous communities (ACs), each with its own regional legislative and executive institutions. While some elements of this “State of Autonomies” was left intentionally open, reforms included the granting of various degrees of autonomy to hospitals in an effort to address the problems inherited in the health sector and to accommodate the aspirations of new stakeholders – notably the newly empowered regions. The resulting approaches and models stemmed from addressing a set of incremental needs without a preconceived plan, and were themselves incremental in nature, combining national decisions and decisions by the brand-new regional structures. While the absence of a