Health fund hit by new wrangles
The president may have signed into law the creation of the new National Health Fund, but uncertainty over the future of the financing of the public health sector continues to rage. To add to the difficulties, political infighting is breaking out over the choice of the person to head the new all-powerful fund and manage its €7.17 million (zł. 30 billion) budget. This represents almost one-fifth of the national budget.
Meanwhile, the country's hospitals are heavily in debt, and the banks are reluctant to help out. Plans for a potential rescue by the private sector have so far come to nothing. An initiative joining Credit Suisse First Boston and financial institutions Greenhouse and LC Corp in a consortium to buy up hospital debt and recycle it failed to make progress. The reason given was political impasse and the lack of a favourable climate to get the deal going. "The consortium could not work because of the instability in the regulations and too much risk," said one insider close to the proposed deal.
Once it is up and running, the National Health Fund will, like the 17 regional funds it replaces, sign contracts with the country's hospitals, in return for which they provide the population at large with medical treatment. Thus, it will be responsible for providing the hospitals with most of their income.
But the hospitals insist that what they are getting is not enough. Sympathy for their plight comes from Aleksandra Gielewska, editor of the monthly medical journal Służba Zdrowia. She said: "You cannot run a hospital with the money you get from the health funds." The hospitals insist they have no choice, other than to go into debt, if they are to provide their patients with proper medical care. And making investments is out of the question, unless funding can be obtained elsewhere.
Adam Kruszewski, investment director at Enterprise Investors, a venture capital fund with a particular interest in the health sector, takes a different view. He says the main problem is with the inefficient management of the hospitals. "They are simply wasting money," he said. "Sixty percent of hospitals' budgets are spent on personnel. This could be cut dramatically."
Kruszewski went on to explain that the whole system is inefficient. "On average, a patient spends nine or 10 days in hospital in Poland. In the US, it is five days. One reason is that in the US there is a proper post-operation rehabilitation system."
Another aspect of the inefficiency is the imbalance in the ranks of medical professionals. There is a prevalence of doctors and nurses to take care of the young, and not enough to care for the elderly. There is also a regional imbalance.
"There's a need for restructuring," Gielewska said. "There's no need for four doctors to attend to a patient at his bedside. It would be better for two of them to go into the countryside to heal people." She explained that the necessary restructuring had been started, but had not been organised properly, and as a consequence, the money had run out.
Whatever the truth of the matter, the fact is that the vast majority of the country's hospitals owe money, and plenty of it. Partly to blame is a decision taken by the government in 1997 to write-off the entire debt of the country's hospitals. This encouraged a sense that it was all right to run up debts, since sooner or later the slate would be wiped clean again.
However, there has been no such amnesty subsequently, and former health minister Mariusz Łapiński only made matters worse when he said that a network of public hospitals would be created, made up of those institutions that achieved the highest standard of performance. Hospital managers interpreted this as an invitation to lavish funds on equipment, with little or no thought given to how it would be paid for.
Łapiński was also criticised for saying, immediately after his appointment as minister, that he intended to transform the health sector with a series of radical policy initiatives. According to one health industry insider, hospital managers were unsure what changes he envisaged, so they opted to bring forward their investment plans, even if this meant borrowing the money needed. "Łapiński's words really shook the health service," the insider said.
As a result, by the middle of last year the health ministry estimated that hospitals were facing calls for the immediate repayment of more than €1.7 billion (zł. 7 billion). With interest and penalty charges, the sum is growing rapidly.
The vast majority of this debt has been accumulated either through non-payment for drugs and equipment or through the failure to honour tax and social security obligations. The debt and the associated financing of it is now so crippling that the hospitals have to act. Some of them see debt restructuring as the solution, and to this end individual hospitals are entering into negotiations with the banks.
The problem is that the banks are not too keen to help out. "Restructuring hospitals' debts is not what bankers call a 'plain vanilla product,' " said one banker, who asked not to be named. A plain vanilla product, he explained, was an ordinary financial product that bankers were used to and did not require any special provisions or involve additional risk.
In short, the consensus among bankers is that hospitals are not good clients. For one thing, hospitals are not companies from the legal point of view. They have no obligation to submit their financial results or undergo audits. Any bank that considers dealing with a hospital will invariably seek guarantees from its effective owner, the local authority. But the local authorities have their own financial problems and are not always ready to make such a budgetary commitment.
One of the few financial institutions prepared to lend money to the country's hospitals is Nordea Bank. The bank has to date signed 20 debt-restructuring contracts with hospitals, with a total value of several tens of millions of złoty. "It's the local authorities we're really interested in," said Arkadiusz Rozmysłowicz, head of the credit department at Nordea Bank. "We lend to a hospital as a way of getting into business with the local authority."
The introduction of the National Health Fund has, in the short term at least, added to the banks' reluctance to lend. They are not sure the hospitals will have their existing contracts - all of them one year - renewed. Previously, they could predict the decisions that would be taken by the regional health funds. With a new body overseeing the whole process, there is significantly more uncertainty.
There is a widespread belief also that decisions taken by the national health fund will be subject to political influence. Such fears have been given credence by events in Dolnośląskie and Śląskie voivodships, where the regional health funds were the best-managed and wealthiest in the country. At the end of last year, on the orders of then-health minister Łapiński, money set aside by the two regional health funds against future expenditure was seized and handed over to other, less efficient health funds.
The uncertainty over the future funding of the health service is being compounded by political infighting over who will head the new National Health Fund. Łapiński, who is widely believed still to wield considerable influence with the prime minister, is backing Aleksander Nauman, a vice minister for health who is known to be at loggerheads with current minister Marek Balicki. As for Balicki himself, he is said to favour deputy finance minister Halina Wasilewska-Trenkner for the post. A third, and possible compromise, candidate is Alfred Owoc, an SLD deputy and member of the Sejm's health commission.
The decision on who will be appointed to the post rests with the prime minister.
Meanwhile, the country's hospitals are heavily in debt, and the banks are reluctant to help out. Plans for a potential rescue by the private sector have so far come to nothing. An initiative joining Credit Suisse First Boston and financial institutions Greenhouse and LC Corp in a consortium to buy up hospital debt and recycle it failed to make progress. The reason given was political impasse and the lack of a favourable climate to get the deal going. "The consortium could not work because of the instability in the regulations and too much risk," said one insider close to the proposed deal.
Once it is up and running, the National Health Fund will, like the 17 regional funds it replaces, sign contracts with the country's hospitals, in return for which they provide the population at large with medical treatment. Thus, it will be responsible for providing the hospitals with most of their income.
But the hospitals insist that what they are getting is not enough. Sympathy for their plight comes from Aleksandra Gielewska, editor of the monthly medical journal Służba Zdrowia. She said: "You cannot run a hospital with the money you get from the health funds." The hospitals insist they have no choice, other than to go into debt, if they are to provide their patients with proper medical care. And making investments is out of the question, unless funding can be obtained elsewhere.
Adam Kruszewski, investment director at Enterprise Investors, a venture capital fund with a particular interest in the health sector, takes a different view. He says the main problem is with the inefficient management of the hospitals. "They are simply wasting money," he said. "Sixty percent of hospitals' budgets are spent on personnel. This could be cut dramatically."
Kruszewski went on to explain that the whole system is inefficient. "On average, a patient spends nine or 10 days in hospital in Poland. In the US, it is five days. One reason is that in the US there is a proper post-operation rehabilitation system."
Another aspect of the inefficiency is the imbalance in the ranks of medical professionals. There is a prevalence of doctors and nurses to take care of the young, and not enough to care for the elderly. There is also a regional imbalance.
"There's a need for restructuring," Gielewska said. "There's no need for four doctors to attend to a patient at his bedside. It would be better for two of them to go into the countryside to heal people." She explained that the necessary restructuring had been started, but had not been organised properly, and as a consequence, the money had run out.
Whatever the truth of the matter, the fact is that the vast majority of the country's hospitals owe money, and plenty of it. Partly to blame is a decision taken by the government in 1997 to write-off the entire debt of the country's hospitals. This encouraged a sense that it was all right to run up debts, since sooner or later the slate would be wiped clean again.
However, there has been no such amnesty subsequently, and former health minister Mariusz Łapiński only made matters worse when he said that a network of public hospitals would be created, made up of those institutions that achieved the highest standard of performance. Hospital managers interpreted this as an invitation to lavish funds on equipment, with little or no thought given to how it would be paid for.
Łapiński was also criticised for saying, immediately after his appointment as minister, that he intended to transform the health sector with a series of radical policy initiatives. According to one health industry insider, hospital managers were unsure what changes he envisaged, so they opted to bring forward their investment plans, even if this meant borrowing the money needed. "Łapiński's words really shook the health service," the insider said.
As a result, by the middle of last year the health ministry estimated that hospitals were facing calls for the immediate repayment of more than €1.7 billion (zł. 7 billion). With interest and penalty charges, the sum is growing rapidly.
The vast majority of this debt has been accumulated either through non-payment for drugs and equipment or through the failure to honour tax and social security obligations. The debt and the associated financing of it is now so crippling that the hospitals have to act. Some of them see debt restructuring as the solution, and to this end individual hospitals are entering into negotiations with the banks.
The problem is that the banks are not too keen to help out. "Restructuring hospitals' debts is not what bankers call a 'plain vanilla product,' " said one banker, who asked not to be named. A plain vanilla product, he explained, was an ordinary financial product that bankers were used to and did not require any special provisions or involve additional risk.
In short, the consensus among bankers is that hospitals are not good clients. For one thing, hospitals are not companies from the legal point of view. They have no obligation to submit their financial results or undergo audits. Any bank that considers dealing with a hospital will invariably seek guarantees from its effective owner, the local authority. But the local authorities have their own financial problems and are not always ready to make such a budgetary commitment.
One of the few financial institutions prepared to lend money to the country's hospitals is Nordea Bank. The bank has to date signed 20 debt-restructuring contracts with hospitals, with a total value of several tens of millions of złoty. "It's the local authorities we're really interested in," said Arkadiusz Rozmysłowicz, head of the credit department at Nordea Bank. "We lend to a hospital as a way of getting into business with the local authority."
The introduction of the National Health Fund has, in the short term at least, added to the banks' reluctance to lend. They are not sure the hospitals will have their existing contracts - all of them one year - renewed. Previously, they could predict the decisions that would be taken by the regional health funds. With a new body overseeing the whole process, there is significantly more uncertainty.
There is a widespread belief also that decisions taken by the national health fund will be subject to political influence. Such fears have been given credence by events in Dolnośląskie and Śląskie voivodships, where the regional health funds were the best-managed and wealthiest in the country. At the end of last year, on the orders of then-health minister Łapiński, money set aside by the two regional health funds against future expenditure was seized and handed over to other, less efficient health funds.
The uncertainty over the future funding of the health service is being compounded by political infighting over who will head the new National Health Fund. Łapiński, who is widely believed still to wield considerable influence with the prime minister, is backing Aleksander Nauman, a vice minister for health who is known to be at loggerheads with current minister Marek Balicki. As for Balicki himself, he is said to favour deputy finance minister Halina Wasilewska-Trenkner for the post. A third, and possible compromise, candidate is Alfred Owoc, an SLD deputy and member of the Sejm's health commission.
The decision on who will be appointed to the post rests with the prime minister.
