Debt engulfs health sector

THE LATEST report on the state of Slovakia's health care sector only confirms what has been known for some time: it is drowning in debt. The sector was Sk8 billion in the red by the end of 2007, a Sk1.25 billion increase year-on-year.

THE LATEST report on the state of Slovakia's health care sector only confirms what has been known for some time: it is drowning in debt. The sector was Sk8 billion in the red by the end of 2007, a Sk1.25 billion increase year-on-year.

The Health Ministry says growing wages and the rising prices of energy and fuel deepened the debt and that the ministry has been working on a solution. Critics of the government's health policies say financial responsibility and discipline are what the sector needs most.

The debt of facilities under the jurisdiction of the Health Ministry reached Sk5.8 billion as of December 31, 2007, Sk1.41 billion up year-on-year, contributing the biggest burden to the total debt, according to the report on the state of the healthcare sector in Slovakia, which the Health Ministry has submitted for interdepartmental review.

"These healthcare facilities are old, technically unsuitable and in many cases are in an acute condition," reads the report.

Some of the buildings are over half a century old and have received little investment, which as a result means they also often fail to meet energy efficiency requirements, the ministry wrote.

"These are high-end facilities, providing mostly financially demanding healthcare, which has not been adequately refunded by health insurance companies," reads the ministry's report.

According to the ministry, the facilities also faced extra expenses because of court proceedings and rulings stemming from their insolvency.

The most indebted healthcare facilities are the teaching hospitals in Bratislava, Banská Bystrica and Košice. The teaching hospital in Nové Zámky, the National Oncology Institute in Bratislava and the National Rehabilitation Centre in Kováčová posted the best results.

The ministry also blamed the previous government, saying it must share some responsibility for the mounting debts.

"The decisions made by the previous management of the health ministry between 2005 and 2006 in making investments without financial coverage have had some negative impact on the sector," the report said.

Healthcare facilities which have been transformed into joint-stock companies have been meeting their obligations on time. Their debt amounted to Sk6 million in late December, down Sk8 million during 2007, as reported by the SITA newswire.

The director of the Health Policy Institute, Tomáš Szalay, said that the government, which has halted the transformation of hospitals to joint-stock companies, is mainly to blame for the situation.

"The facilities are thus left on soft budgetary constraints and without corporate governance rules [so] nothing really motivates them to reach a balanced budget and eventually the taxpayers pay the bills instead of them," Szalay told The Slovak Spectator.

Last year the Fico government halted the transformation of public hospitals into joint-stock companies by amending the law on healthcare providers, a move that made health insurance companies, investors and analysts nervous.

The previous government opted for joint-stock hospitals as a way to cut the debt of health institutions.

Health Minister Ivan Valentovič has insisted that the state is no worse at owning and managing health institutions than private owners.

Valentovič's ministry claims that it has managed to slow down the growth in the debts of the sector despite the fact that healthcare utilities falling under the ministry's administration secured a 10 percent pay hike from May 1, 2006 and then increased wages again by 10 percent from December 1, 2006. The increases were part of an agreement with trade unions.

Healthcare facilities' biggest debts - 55 percent of the total - are owed to drug suppliers, while the amount owed to social security provider Sociálna Poisťovňa as of late December 2007 stood at Sk875 million, or 15 percent of the total. Debts to gas, water and energy suppliers form another 8.4 percent.

Szalay, of the Health Policy Institute, sees two facets to the problem of the healthcare sector's indebtedness.

"The first is the implicit inability of politicians, regardless of party affiliation, to prefer professional nominations over political ones when it comes to appointing people to the posts of directors of state hospitals and insurers," said Szalay. "Such an environment does not produce effective solutions."

The second facet of the problem, Szalay said, is the helplessness of the current government, which rejected economically-logical solutions, such as the transformation of hospitals, but has not come up with any alternatives.

"Currently an ineffective status quo is being preserved," Szalay added.

The Health Ministry in its report said that it plans to begin projects that will solve the problem of continuously growing energy bills arising from outdated buildings.

According to the ministry, the installation of some "systematic solutions" such as cuts to the VAT rate on medication, as well as a cut in drug prices by 6.6 percent have brought Sk4.14 billion in savings.

According to Szalay, what the health care sector needs is financial responsibility and discipline.

The Health Policy Institute says one solution lies in completing the transformation of hospitals to joint-stock companies, since only existential threats are a real motivation for them to change their organisation and implement corporate governance measures.

The think-tank also recommends that the government restrains the growth of healthcare expenses by stricter drug policies, by quicker reduction in the number of redundant hospital beds, or by the restructuring of large hospitals.

"However, all of these points are much less politically controversial than the transformation of hospitals to joint-stock companies," Szalay added.

He assumes that the sector's debt will climb further as long as no systematic changes are made at state hospitals similar to those that occurred at health insurers.

Last autumn the government decided that only healthcare facilities controlled by Slovakia's Health Ministry would be allowed onto the list of institutions guaranteed contracts with state health insurers. The future of other healthcare providers would depend on the goodwill of insurers. An analysis by the health ministry suggests that there were 36,805 hospital beds in Slovakia in November 2006, while the ministry wants to have 29,170 in a minimum network covered by health insurers.

On October 24, 2007, the cabinet approved a minimum public network of 34 state healthcare facilities, with health insurers only having to provide contracts to hospitals included on the list.

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