Austerity measures in the healthcare system – Why? To what end? Who benefits?

by Professor Dr med. David Holzmann, Zurich

At present, the world is kept in suspense by the pandemic caused by a new viral disease, and the importance of a good and well-functioning health care system has once again become clear to us all. But even though ever louder voices in the population claim that hospital closures would be absolutely irresponsible, especially now, in view of the demonstrably inadequate pandemic protection, health economists are still adamant that hospital closures are the way to go. The question rises whether the Federal Council and parliament will continue to pursue their health policy course, including further cost-cutting measures, or whether they might yet be more reasonable. It remains to be feared that the hospital closures and the measures against the constantly rising health insurance premiums planned before the appearance of the corona virus will continue to be pursued by the decision-makers, regardless of the facts. Regardless of the facts, this means that before further cost-cutting measures are planned, a glance should be cast at the causes of the rising health insurance premiums. In general, however, it is not clear to the population how and why health insurance premiums are constantly rising or why the Confederation and the cantons are contributing less and less to healthcare costs. This clarification is to be provided here, and on that account, a view into the recent history of our country is essential.

What is the connection between the WTO agreements
and the upheavals in the Swiss healthcare system?

On 15 April 1994, the then Federal Councillor Jean-Pascal Delamuraz (FDP) signed the Swiss Confederation’s declaration of accession to the World Trade Organization WTO in Marrakech ( Contrary to constitutional considerations expressed by well-known lawyers, this decision was not subjected to a mandatory referendum, but only to an optional referendum, which, however, did not come about. With the accession to the WTO and the associated GATS treaties, each accession state undertakes to use less and less state funds (taxpayers’ money) for public services and thus also for its health system.
The new Health Insurance Act (Krankenversicherungsgesetz KVG) was adopted in a plebiscite in September 1995. A campaign led by the head of the Federal Department of Home Affairs (FDHA), Ruth Dreifuss (SP), made palatable to the people that the health insurance premiums, which had been rising moderately up to then, would become cheaper if the health insurance companies were enabled to break away from the corset of the so-called Health Insurance Concordat1 and began to compete freely with each other.

The passing on of costs
resulting from the 1996 KVG reform

In the period before 1996, i. e. before the KVG reform, all costs incurred in the outpatient sector of health care (e. g. visits to the family doctor or to the policlinic (outpatient ward) of a hospital) were settled via health insurance (KK). The strict requirement was that the health insurance companies were not allowed to make a profit. In addition to their income from the premiums of the insured, they had a kind of deficit guarantee from the public authorities, in that the public authorities took over those costs that could not be covered by premium income. Regarding the treatment of inpatients, health insurance funds and public authorities shared the costs equally. In September 1995, the fact that as of 1 January 1996 the KK would only receive the premiums of the insured as a source of income was kept from the people’s notice, by the use of sharp practices. The KK were now obliged to handle outpatient treatment without public contributions.
As before, the costs of inpatient treatment were borne equally by the KK and the municipality or canton. However, it was now up to politics and the economy to increasingly withdraw from the financing of inpatient treatment. Following the introduction of the new KVG on 1 January 1996, the health directors complained about alleged overcapacity in hospitals. In the Canton of Zurich, government member Verena Diener (Greens or Green Liberals) decided to close seven hospitals at one stroke without further ado, without being able to prove any savings potential. Other cantons resisted such efforts, as in addition to small-scale decentralised health care, a small hospital also represents a location advantage and economic factor.

Causes of the premium explosion and
the shift from inpatient to outpatient

Today no more tax money is flowing into the care of outpatients. Only the Spitex units (external help and care at home) receive tax money from the municipalities, as they would not be able to maintain their operations with the payments from health insurance funds alone. By closing hospitals, the cantons have been able to save further tax money. If one now also takes into account the fact that medical progress means that more and more treatments can be carried out on an outpatient basis, more and more costs are therefore being handled by the health insurance funds alone and thus by the premium payer. As health insurance premiums began to rise steadily, and more and more people began to complain about this, the official federal and cantonal authorities felt called upon to use the savings lever in the outpatient care sector. Outpatient examinations and treatments are charged according to the tariff system of the so-called “TarMed”. Clearly health policy makers were now passing on the complaints of the population about high premiums to doctors and outpatient treatment institutions. In a seemingly never-ending dispute between politicians and doctors over TarMed, the politicians proved to be stronger. Especially the doctors in primary care and the hospital policlinics were confronted with the fact that the TarMed treatment tariff was barely sufficient to cover their costs. Nevertheless, the Federal Council insisted on further cost-cutting measures and announced the message “outpatient rather than inpatient”. This message prescribes which operations must be carried out on an outpatient and no longer on an inpatient basis. In view of the flood of articles by political leaders in the mainstream media, the doctors’ resistance was without chance. Accordingly the “Neue Zürcher Zeitung” of 13 May 2019 reported uncritically under the title: “Outpatient operations mean financial relief for the cantons” because “hospitals are increasingly sending patients home without overnight stays”.
As a result of medical progress, the average length of stay in a hospital has fallen continuously for more than two decades. However, since people in our country are still getting ill and need treatment, these lines will explain that it is the public sector that is contributing less and less to the costs, while the premium payer, i. e. the sick person, has to pay correspondingly more. 

Hospital closures in the age
of case-cost flat rates (DRG) 

What politicians refer to as “increasing the efficiency of the health care system” has been explained above and says nothing else than the systematic withholding of tax money that is actually due to the health care system under state law. It will have become clear from the text above that every hospital closure means a reduction of the financial burden for the respective municipality or canton. In addition to their closing of hospitals, the politicians responsible have also exerted considerable pressure on the inpatient tariff and billing systems. In the case of inpatient treatment, the costs of basic care (for patients with general insurance coverage) are covered by a flat-rate case fee (so-called Diagnosis Related Group, DRG). This means that for a specific diagnosis (e. g. a hernia) a fixed amount (flat rate) is paid for treatment – regardless of the individual case and its possible complications. When this DRG system was introduced, doctors fought it with reference to the devastating effects in Germany. However, even an open letter from over 50 senior physicians at the University Hospital Zurich – all of them habilitated lecturers and professors – triggered at most a small storm in a teacup in the Department of the Interior in Bern (Schweizerische Ärztezeitung 2011;92: 964f).
All the fears expressed at the time have come true, but will not be listed here in detail. Those politically responsible are no longer members of the National Council or the Council of States, and also in the Federal Council others now carry responsibility. Yet instead of working on damage control, health politicians, escorted by so-called health economists, continue following their road map and action plans. Only those who have the money and good fortune to have supplementary hospital insurance will be less affected by the austerity measures. As feared, the DRGs were rigorously cut down, which is why for example the Zurich Health Directorate was able to proudly report on 8 July 2019 that average case costs were reduced by 2.3% (press release of the Health Directorate of the Canton of Zurich and “Neue Zürcher Zeitung” of 9 July 2019).

The “gaining of independence” alias privatisation of public hospitals –
malicious use of psychological tricks

Led by the bourgeois parties FDP and large parts of the SVP, doctors and hospitals have been and continue to be called upon to apply more free-market principles to health care. This is already evident in the terminology, which speaks of customers instead of patients, service providers instead of doctors, nurses, physiotherapists or hospitals. In recent years, hospital buildings have been released into the responsibility of the respective hospitals, which were thus transformed into “independent companies”. Cantonal hospitals have thus been transformed into public limited companies (e.g. the Cantonal Hospital Aarau). In concrete terms, this means that hospitals have to pay for all maintenance (cleaning, repairs, fire protection, renovation, etc.) themselves and finance this through their own revenues from patient care. In the case of the University Hospital Zurich, this has enabled those responsible in the Cantonal Council – in an inglorious way – to get rid of the costs of renovating the aging buildings. Virtually all the buildings were in need of renovation at the time of transfer from the canton to the University Hospital. The story of the nuclear medicine wing is almost heinous: several tons of asbestos material had been used in its construction, and knocking down the building requires extremely expensive dismantling and disposal before a new building can be erected there. At the same time, the canton also got rid of its dispute with the monument protection authorities. There are many more disagreeable duties which the canton was able to get rid of elegantly by means of the “independence/privatisation” of its hospitals.
It is obvious that public hospitals are not profitable enough. According to Price Waterhouse Coopers, the EBITDA margins2 of acute care hospitals and psychiatric institutions are only 5.9–6.4 %. In the long term, this is not enough to make necessary investments, for which margins of 10 % would be necessary (Richard Schindler, Head of Capital Markets at Zurcher Kantonalbank and lecturer at the University of Zurich in the “Neue Zürcher Zeitung” of 22 March 2017). The Cantonal Council, however, sets these margins and was able to achieve, at the University Hospital of Zurich for example, that doctors have to give up parts of their additional earnings in order to perhaps still be able to achieve this unrealistic margin. To explain: Up to now, the actual income of salaried management physicians (senior physicians, clinic and institute directors) has been made up of a fixed salary and additional earnings (additional medical fees) earned from the treatment of patients with supplementary insurance (private and semi-private insurance). In most public hospitals, about 55 % of these additional fees are paid to the hospital, while the remaining 45 % flow into a clinic pool. From the latter, shares are distributed among the management physicians according to a distribution key.

The “fruits” (excesses)
of this new health policy

In recent years, the budget of the canton of Zurich has been in the black. Against the background of what has been said so far, however, the words of Finance Director Ernst Stocker (SVP) really go against the grain: “However, another item stands out: the canton had to spend 112 million francs less than budgeted for per-case flat rates in hospitals” (“Neue Zürcher Zeitung” of 16 March 2019). The elegant coup of the slogan “outpatient before inpatient” also contributed to the outcome that the cantons have been and are able to save a considerable amount of money. The “Neue Zürcher Zeitung” of 19 March 2019, for example, writes that in 2018, nine cantons saved a total of 200 million compared to their  budgets, 112 million of which was saved by the canton of Zurich. “But it is unanimously stated that the main cause is likely to be the shift from the inpatient to the outpatient sector.” Needless to say, the fact that the costs were loaded onto the health insurance companies and thus on the premium payers even more than before was not mentioned.

Patients cannot be compared with screws – or:
the nonsense of applying market based principles
to the health care system

It is not difficult to see that health care cannot be forced into a market based corset. But that is exactly what was started in 1996. At that time, political leaders began to talk about medical “supply” and “demand”. The bourgeois parties, in particular, accused doctors of not being cost-conscious in their work and of not meeting the WZW criteria (wirtschaftlich, zweckmässig, wirksam – economic, functional, effective). To this day, however, these WZW criteria have never been defined, not even in response to repeated requests by the author of this article.
With the birth of a new profession, that of health economist, the economic parties have built up propagandists in the proper sense, whose usefulness has never been proven. It was and still is a mistaken belief that principles of supply and demand can be applied to the treatment of a patient. This may work in the production of screws; the processes are standardised and can therefore be planned and calculated. The creators of an economised medicine have ignored individual needs, concomitant diseases and other circumstances related to patients. Thus, not every 73-year-old patient with a hernia can be treated in the same way, a standardised way, as can be done with screws. One person is in perfect health, while another person of the same age suffers from high blood pressure, diabetes, etc. and is hardly able to walk.
As soon as this circumstance was recognised, patients were divided into different degrees of severity, which is recorded in the so-called Case-Mix-Index (CMI). With the CMI such concomitant diseases are included. This has, however, imposed an additional task on doctors and hospitals: For each patient, a list of all his or her concomitant diseases has to be listed as meticulously and completely as possible when the invoice is issued; and this has further increased the administrative proliferation thus necessary in order to be able to cover the effective costs of patient care. In the DRGs mentioned, the representatives of an economised medicine have disregarded delays caused by complications such as wound infections. But in contrast to the screw, each patient is unique and one of a kind, so to speak a prototype. Moreover, health cannot be measured. Health economists are ignoring both of these aspects.
More and more hospitals have faced up to the competition and have increased their “supply”; they advertise on expensive homepages, in public transport and in many other ways. Thus, some smaller hospitals, to avoid bankruptcy, have tackled the issue head-on. When, for example, the regional hospital in Einsiedeln considered opening an invasive heart centre a few years ago, there was harsh criticism from politicians. When asked by the regional journal of Radio SRF1 whether this was not somewhat exessive, the then hospital director answered that if politicians demanded that hospitals compete with each other, they were free to expand their services. When asked whether this would not cost too many patients too much money and time, the hospital director replied that the political decision-makers would have to answer that question, and that he was responsible for ensuring that the hospital did not have to close.

Alarming excesses

Private clinics like Klinik Hirslanden have higher profitability. According to Richard Schindler, their EBITDA margin is around 20 % (“Neue Zürcher Zeitung” of 22 March 2017). Negative areas such as further education or specialists training and the acceptance of emergencies are handled very restrictively here. A public hospital, however, must examine ie diagnose every emergency patient who claims to need “emergency” treatment. These investigations must be carried out even if the patient does not have any documents.
Occasionally, private hospitals have attracted negative media attention because their proportion of patients with only basic insurance was and still is much lower than in public hospitals (for example, the Hirslanden Clinic only had 24 % in 2017). Nevertheless, the Hirslanden private hospital group, for example, has done everything it can to obtain a place on the “list”. A place on the list means that the canton gives the hospital the mandate to treat persons with basic insurance and subsequently pays 55 % of their costs.
The “quantity expansion” has already been explained above. In general, there can be no doubt that many hospitals are increasingly striving to expand their medical services in the wake of the public authorities’ cost-cutting measures on the one hand and the free-market orientation of politics on the other. The public hospital can make its greatest profit only from in-patient treatment, especially for patients with supplementary insurance. To this end, many hospitals have set out to reach as many of these private patients as possible, for which they have set up their own marketing departments.
In the public discussion, however, politicians and health economists, who are precisely those who have forced the economisation of medicine and thus the profit orientation of hospitals, are now discussing a “quantity expansion” and are once again putting the blame on doctors and hospitals.

How to counteract?
Possible approaches to a “way out”

A public health system needs public funding and cannot finance itself. In this sense, what we once learned in civic education was correct: The Confederation and the cantons levy taxes to ensure, among other things, the provision of health care. That is why health insurance is a social insurance.
The Federal Council’s signature on the WTO and thus the GATS treaties had disastrous consequences that should be corrected. Free-market principles cannot work in health care because the very definitions of “patient” and “customer” are not congruent and, moreover, the state of health of a nation cannot be measured in francs and centimes. Nor can and must it be the aim of a health care institution such as a hospital to be targeted at return or profit. In the fire service, for example, there are also factors that cannot be measured in francs, and the most important one is safety.
Like the Old-Age, Survivers and Disability Insurance (OASI/DI) and other insurance schemes, health insurance schemes should be social insurance schemes, and the federal government and the cantons should contribute to their financial security. It has been overlooked that good health care with an appropriate and controlled density of physicians and hospitals is also an economic factor.
A reversal in the assessment of values in health care is more necessary than ever. High life expectancy and low infant mortality have been and still are parameters for measuring a high quality of life and economic prosperity in a country. It is a great asset and a clear sign of medical progress that today a great many people over 75 years of age live with about three diagnoses and enjoy a good quality of life.
Certainly, health care costs should not get out of hand, but experience shows that the abolition of regulatory measures in favour of “more market” was a mistake.  Before 1996, it was the task of the respective “cantonal physician” to determine exactly where in his canton there was a need for which doctors or for an inpatient facility. In addition, the procedures for the admission to practice of doctors, physiotherapists, etc. were subject to very strict guidelines. This has been abandoned without replacement.
A very central aspect which can certainly not be dealt with conclusively here concerns the physician in his role as a helper, “service provider” to the patient. It cannot be denied that, in the context of a certain change in values, especially in industrialised countries, various doctors have misunderstood the meaning of their profession. This, however, is an expression of a general social development that has completely pushed the human-social aspect of the medical profession (not only of this calling) into the background, in favour of economic considerations and a mentality of profit maximisation. The time has come to give more weight again to values such as joy in helping others, responsibility for the common good, consideration, thrift and other values in their right sense – not only in the field of health care.
Certainly, many new factors have emerged over the last 25 years that need to be taken into account. But that does not mean that everything was bad in the decades before. A critical assessment with a necessary reversion to certain values will certainly lead to a healthier – and also affordable – healthcare.    •

1  Concordat: In Switzerland, this is what contractual agreements between cantons are called. They can be concluded between individual cantons, a few, or all of them. With such concordats, areas under cantonal sovereignty can be harmonised as required without the need for national legislation.
2  Earnings Before Interest, Taxes, Depreciation and Amortisation: They are regarded as key figures in the profit and loss account and are intended to reflect the earning power and efficiency of a company.

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