There is a risk of further bankruptcies
Is Lauterbach’s reform for hospitals coming too late?
October 11, 2023, 6:34 a.m
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34 hospitals in Germany have already gone bankrupt in the last year, and further closures are looming. The main reason is the health care reform from 2003. Minister Lauterbach wants to reform this in turn. But do the clinics have that much time?
The feared wave of insolvencies is emerging among Germany’s hospitals: since November 2022, according to figures from the German Hospital Association (DKG), 26 providers with a total of 34 hospitals have filed for bankruptcy within just under a year. In several cases, further bankruptcies have been averted by local municipalities stepping in as rescuers.
“The one question is, will the hospitals survive in the near future until a reform comes into force? The situation has worsened further because the cost-revenue gap has widened further,” says DKG Vice President Thomas Lemke, whose main job is CEO the Sana Clinics in Ismaning near Munich. On October 25th, Lemke and a number of experts will discuss the tense situation at an expert forum organized by the management consultancy RS Medical Consult in Berlin.
So far, in the vast majority of cases, bankruptcies do not mean closure, but a lot of houses are in need. According to a survey conducted by management consultancy Roland Berger among the 600 largest German clinics in the summer, over half are in the red.
An example: The Regiomed clinic network with seven hospitals in Upper Franconia and Thuringia. Due to the risk of insolvency, the shareholders recently decided to transfer the clinics to the respective municipalities. “With all the consequences, especially of a financial nature, because every euro from the municipalities – like every private person – can only be spent once,” says Christian Meißner, district administrator of the Lichtenfels district and chairman of the shareholders’ meeting. Money that needs to be given to hospitals is missing in other areas such as schools or roads. “In the worst case scenario, the hospital landscape will be privatized through bankruptcies, where the private hospital operators pick out the pieces that bring in money,” says the local politician. “The rest – probably mainly in rural areas – would then have to be dealt with.”
Lauterbach points to a high supply density
The Federal Ministry of Health points out that no country in Europe except Austria spends more per capita on hospitals than Germany. And with more than 1,700 clinics, the hospital density is greater than in any other country in Europe. “Since many hospitals can no longer be operated economically, many experts assume that without the hospital reform, 25 percent of clinics would go bankrupt by 2030,” the ministry said in a statement.
The last reform took place in 2003: Due to exploding costs, the federal government introduced flat rates per case, called DRG (“diagnosis related groups”). Roughly speaking: Clinics receive flat-rate payments for each diagnosis and the corresponding therapy, regardless of how long a patient stays. This should shorten hospital stays and increase profitability. Since then, clinics have had a financial incentive to treat and operate on as many patients as possible. In 1991, a patient spent an average of two weeks in the hospital; in 2022, according to the Federal Statistical Office, it was only half as long.
The number of hospital beds has been since 1991 shrunk by over a quarter to 480,000, but the annual “case number” of patients rose from 14.5 to over 19 million from 1991 to 2019. The pandemic then brought a slump to under 17 million, which significantly worsened the financial crisis.
“Reserve compensation” instead of a pure flat rate per case
Health insurance companies have been accusing clinics for years of scheduling too many and sometimes unnecessary operations. Now the federal government wants to change the system again under the keyword “de-economization”. The clinics should receive 60 percent of their budgets as “reserve compensation,” without any connection to operations and treatments. But existential fear is rampant in many clinics.
“If nothing changes in the key points, around 400 to 500 clinics will slip into the so-called level of polyclinics or outpatient centers,” says DKG Vice President Lemke. “Another 300 to 400 clinics will have their care levels reduced and will then face closure,” he warns. “The decisive factor for how many hospitals in Germany survive is the question of how the service groups and structural features are defined in the hospital reform.” Instead of “de-economization,” the DKG fears the opposite: “Forty percent of the revenue should continue to be generated via the DRG system,” says Lemke. However, the proportion of money distributed via the DRGs will decrease and the individual service will therefore be worth less. “The small and medium-sized rural hospitals that we actually want to protect have to run even faster in the hamster wheel in order to survive.”
Rural clinics often offer a smaller and less profitable range of services than larger urban centers. Hospitals in cities or university hospitals that are classified as “maximum providers” would receive a disproportionate share of the funds with the new financing system, predicts DKG Vice President Lemke. “At the end of the day this will lead to de facto rationing, that’s the logic.”
The Ministry of Health explicitly rejects this accusation: “The retention fee reduces the economic pressure on hospitals to provide services,” explains a spokesman. Minister Karl Lauterbach, in turn, points to the federal states. “It is undisputed that the states have not paid 30 billion in investment costs in the last ten years,” said the SPD politician recently in the Bundestag. The only thing that seems certain at the moment is that further bankruptcies will follow.