Physician, heal thyself
The vast majority of Poland's public health service, including almost all the country's large hospitals and medium-sized clinics, is marooned by debt. Past due date liabilities owed by individual public healthcare institutions (SPZOZs) at the end of last year stood at around zł.5.9 billion-double the 2001 value. This sum represents 61.5 percent of the SPZOZs' total liabilities.
An act aimed at treating the health service's dire financial condition has been circulating between parliament and the health commission for the last few months. But a lack of clear laws is keeping hospital directors in check, with collectors taking possession of more hospital assets and various pharmaceutical creditors' lobby groups fighting more vigorously for their rights.
External debt structure
The dramatic debt increase is due to a number of factors: the aggravated economic situation of the health institutions; their mismanagement; and their lack of liquidity, which implies an inability to cover current liabilities.
The amount of liabilities varies depending on the region. The highest growth in the past year, some 64 percent, was in the Wielkopolski district, reaching zł.155.6 million (which is still one of the lowest values in Poland), and the Lubuski district, at 35 percent, amounting to zł.403 million. The Podkarpackie and Malopolskie districts noted 10 and five percent decreases in their debt level, amounting to zł.134.5 million and zł.169.1 million respectively. By the end of 2004 the most indebted districts were: Mazowieckie at zł.528.8 million, Łódzkie at zł.721.6 million, and Dolnośląskie at zł.1.1 billion.
However, not all SPZOZs in the districts are indebted. Many health institutions employing less than 50 people are managing to maintain their liquidity, but their number is decreasing, while most hospitals are on the verge of bankruptcy.
Małgorzata Kalińska, the director of children's hospitals on ul. Litewska and ul. Działdowska in Warsaw, says: "Money is still not following the patient. Many valuations made by the National Health Fund [NFZ] are under-priced, meaning that curing the patient costs more than we get refunded. As an SPZOZ, we are not allowed to accept private patients and charge them according to services provided, although we still have potential we cannot materialize. How, in such an environment, are we to maintain liquidity, improve services, and be competitive?"
Internal debt structure
The majority of the zł.5.9 billion debt is public liabilities, at 31.2 percent, medical suppliers' liabilities at 19.9 percent, and accrued employees' liabilities, at 18.5 percent.
Employees' past-due liabilities have reached zł.765 million to date and are a result of 'act 203' passed in 2001, which brought about a compulsory yearly wage increase of a minimum of zł.203 in 2001 and no less than the country's average wage increase in 2002. Only 55 percent of SPZOZs managed to comply with that law in 2001, emphasizing their financial inability to cope with the regulations.
The debt is becoming more expensive as the balance switches from current to past-due liabilities. Desperate creditors are going to the courts, where hospitals, having nothing in their defense, lose and are obliged to cover the debt plus collector and judicial costs.
What caused the disease?
Basically, it comes down to a lack of balance between costs and earnings followed by a debt spiral, which is a result of insolvency.
SPZOZs' financing comes from the NFZ, which consists of a percentage of national budget (public spending on health) and national insurance contributions. Since 1999 the nominal value of public spending has been increasing and is due to reach zł.36.9 billion in 2005, nine billion more than six years ago. However, its share in relation to GDP has decreased from 4.1 percent in 1999 to 3.9 percent in 2005. By comparison, health spending in the U.S. (the highest in the world) makes up 14 percent of GDP, in Canada it's nine percent, and in Greece five percent.
In Poland, budgetary spending on health since 2000 has been declining, causing a rise in the total value of contributions, switching the responsibility from government to the people.
In real terms, SPZOZs obtained fewer contracts from NFZ resulting in a decrease in the number and cost of services performed. By law, hospitals cannot deny help to any individual in serious condition, even if the limit contracted by NFZ has been reached. The institutions are then forced to absorb the costs themselves.
SPZOZs are not exempt from real-estate tax or VAT, which was recently reduced for medical apparatus from 22 to seven percent. Moreover, there is no organization responsible for assessing the condition and usage of hospital apparatus. This leaves funds open for misuse in unnecessary purchases or repairs, further reducing the funds available to treat patients with.
The prescription
Specialization, rationalization and productivity are terms that most executive structures within SPZOZs should get accustomed to. "Radical, painful steps have to be taken. Some hospitals will go bankrupt, leaving stronger and better managed ones standing. But unless decisions are made fast, even the good ones will fall; we cannot wait anymore," says Małgorzata Kalińska.
Agreement on the disputed draft regulating the re-organization of SPZOZs, transforming them into public utility companies and securing cheaper loans, must soon be reached. It will provide preferential terms to institutions with restructured finances and an agreement with creditors. A sum of zł.2.2 billion has been secured, which will be redistributed among hospitals upon its completion. From that sum, hospitals can only cover public and employees' liabilities. This leaves medical suppliers out in the cold; they will either reach an agreement with the hospital within a specified period of time or their debt will be canceled due to the hospital's new legal status, pressuring them to co-finance the reformation. "We will not agree to such a solution. It is a violation of our laws," says Małgorzata Wychowaniec, who represents a health system creditors' consortium. "If that form is accepted we will not hesitate to take the bill to the Constitutional Tribunal." She suggests that SPZOZs' liabilities should be converted to bonds issued by respective municipalities, thereby making them the owners of the hospitals.
Governmental support and legal clarity is essential and can only be reached through determination and consistency. Health ministers are surprisingly creative and full of unconventional methods. However, the latest medicine to cure the SPZOZs appears to revolve around creditors, taxpayers and debtors, instead of more inventive suggestions.
An act aimed at treating the health service's dire financial condition has been circulating between parliament and the health commission for the last few months. But a lack of clear laws is keeping hospital directors in check, with collectors taking possession of more hospital assets and various pharmaceutical creditors' lobby groups fighting more vigorously for their rights.
External debt structure
The dramatic debt increase is due to a number of factors: the aggravated economic situation of the health institutions; their mismanagement; and their lack of liquidity, which implies an inability to cover current liabilities.
The amount of liabilities varies depending on the region. The highest growth in the past year, some 64 percent, was in the Wielkopolski district, reaching zł.155.6 million (which is still one of the lowest values in Poland), and the Lubuski district, at 35 percent, amounting to zł.403 million. The Podkarpackie and Malopolskie districts noted 10 and five percent decreases in their debt level, amounting to zł.134.5 million and zł.169.1 million respectively. By the end of 2004 the most indebted districts were: Mazowieckie at zł.528.8 million, Łódzkie at zł.721.6 million, and Dolnośląskie at zł.1.1 billion.
However, not all SPZOZs in the districts are indebted. Many health institutions employing less than 50 people are managing to maintain their liquidity, but their number is decreasing, while most hospitals are on the verge of bankruptcy.
Małgorzata Kalińska, the director of children's hospitals on ul. Litewska and ul. Działdowska in Warsaw, says: "Money is still not following the patient. Many valuations made by the National Health Fund [NFZ] are under-priced, meaning that curing the patient costs more than we get refunded. As an SPZOZ, we are not allowed to accept private patients and charge them according to services provided, although we still have potential we cannot materialize. How, in such an environment, are we to maintain liquidity, improve services, and be competitive?"
Internal debt structure
The majority of the zł.5.9 billion debt is public liabilities, at 31.2 percent, medical suppliers' liabilities at 19.9 percent, and accrued employees' liabilities, at 18.5 percent.
Employees' past-due liabilities have reached zł.765 million to date and are a result of 'act 203' passed in 2001, which brought about a compulsory yearly wage increase of a minimum of zł.203 in 2001 and no less than the country's average wage increase in 2002. Only 55 percent of SPZOZs managed to comply with that law in 2001, emphasizing their financial inability to cope with the regulations.
The debt is becoming more expensive as the balance switches from current to past-due liabilities. Desperate creditors are going to the courts, where hospitals, having nothing in their defense, lose and are obliged to cover the debt plus collector and judicial costs.
What caused the disease?
Basically, it comes down to a lack of balance between costs and earnings followed by a debt spiral, which is a result of insolvency.
SPZOZs' financing comes from the NFZ, which consists of a percentage of national budget (public spending on health) and national insurance contributions. Since 1999 the nominal value of public spending has been increasing and is due to reach zł.36.9 billion in 2005, nine billion more than six years ago. However, its share in relation to GDP has decreased from 4.1 percent in 1999 to 3.9 percent in 2005. By comparison, health spending in the U.S. (the highest in the world) makes up 14 percent of GDP, in Canada it's nine percent, and in Greece five percent.
In Poland, budgetary spending on health since 2000 has been declining, causing a rise in the total value of contributions, switching the responsibility from government to the people.
In real terms, SPZOZs obtained fewer contracts from NFZ resulting in a decrease in the number and cost of services performed. By law, hospitals cannot deny help to any individual in serious condition, even if the limit contracted by NFZ has been reached. The institutions are then forced to absorb the costs themselves.
SPZOZs are not exempt from real-estate tax or VAT, which was recently reduced for medical apparatus from 22 to seven percent. Moreover, there is no organization responsible for assessing the condition and usage of hospital apparatus. This leaves funds open for misuse in unnecessary purchases or repairs, further reducing the funds available to treat patients with.
The prescription
Specialization, rationalization and productivity are terms that most executive structures within SPZOZs should get accustomed to. "Radical, painful steps have to be taken. Some hospitals will go bankrupt, leaving stronger and better managed ones standing. But unless decisions are made fast, even the good ones will fall; we cannot wait anymore," says Małgorzata Kalińska.
Agreement on the disputed draft regulating the re-organization of SPZOZs, transforming them into public utility companies and securing cheaper loans, must soon be reached. It will provide preferential terms to institutions with restructured finances and an agreement with creditors. A sum of zł.2.2 billion has been secured, which will be redistributed among hospitals upon its completion. From that sum, hospitals can only cover public and employees' liabilities. This leaves medical suppliers out in the cold; they will either reach an agreement with the hospital within a specified period of time or their debt will be canceled due to the hospital's new legal status, pressuring them to co-finance the reformation. "We will not agree to such a solution. It is a violation of our laws," says Małgorzata Wychowaniec, who represents a health system creditors' consortium. "If that form is accepted we will not hesitate to take the bill to the Constitutional Tribunal." She suggests that SPZOZs' liabilities should be converted to bonds issued by respective municipalities, thereby making them the owners of the hospitals.
Governmental support and legal clarity is essential and can only be reached through determination and consistency. Health ministers are surprisingly creative and full of unconventional methods. However, the latest medicine to cure the SPZOZs appears to revolve around creditors, taxpayers and debtors, instead of more inventive suggestions.
