I. Introduction
Deeper integration in the area of public health will necessarily lead to intersections with areas of exclusive European Union (EU) competence, such as State aid, in unexplored ways. As the debate on State aid rules vis-à-vis national healthcare policies has always been framed on whether they should be applicable at all, a new EU public health extended competence would require a policy decision on how State aid rules should adapt to the new constitutional cadre. This does not mean that financially supporting healthcare in order to guarantee universal coverage should simply be transformed into an economic activity and subjected to the full trade and competition package. A stronger EU public health competence should still be based on a multi-level governance model with different responsibilities allocated to relevant stakeholders.
The concept of the “iron triangle” in healthcare, coined by William Kissick in the 1990s to apply to the US context, purports that healthcare policies have to face an important conundrum. Access, cost and quality of healthcare cannot all be simultaneously enhanced, as the improvement of one of these dimensions would result in the deterioration of another.Footnote 1 Accordingly, the COVID-19 pandemic has tragically unmasked the empty rhetoric according to which the only solution for saving universal coverage is cost reduction. Weaknesses in European healthcare systems were exposed: excessive reductions of investments in research; inefficiency in procuring essential medical devices and equipment; the lack of coordination between the public and private sectors; and significant coverage gaps not only in terms of access to care but also in terms of sickness benefits, which left many health workers and carers unprotected.Footnote 2 However, recent research shows that the iron triangle can be challenged by “disruptions”, be they technological or simply organisational.Footnote 3 We argue that the application of EU State aid law could constitute a beneficial disruption that might result in the improvement of access, cost and quality of healthcare in the Member States (MS). The control of the Commission – perhaps shared with national independent authorities – should ensure that healthcare spending complies with a minimum European standard of solidarity and competition. If a fair balance is struck between solidarity and competition, such scrutiny might have a positive, disruptive impact on the complacent management of health at the national level. Yet, this will come – as always – with an important price tag in terms of MS power to decide how public money should be spent.
II. Healthcare, State aid and evolving responsibilities
The system devised by the EU Treaty provides in Article 107(1) TFEU for a general prohibition of State aid, defined as aid granted by MSs through state resources that distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods. Articles 107(2) and 107(3) TFEU list several exemptions to this rule, suggesting that State aid is not always detrimental to the internal market, but can sometimes serve the European common good and be used to create “a level playing-field for European economy”. Footnote 4 The Commission has only marginal discretion in deciding what measures constitute State aid, but it can enjoy wide discretion to judge the compatibility of aid with the internal market, especially under Article 107(3), which covers most of State aid exemptions. The effectiveness of the system is based on an obligation imposed on MSs to notify in advance regarding any aid measures in order to seek the approval of the Commission.
As the criteria listed in Article 107(1) are objective, they apply regardless of the kind of regulatory competence exercised by the EU. This creates a delicate conundrum, as organising and funding healthcare are essentially national competences. As laid out in Article 168 TFEU, the EU holds limited competence in the area of human health and can only coordinate, supplement and support national action. There are thus compelling reasons to believe that national measures aiming at funding healthcare-related activities should be shielded from the scrutiny of the Commission. This can be done, as has been the case before, by considering that such measures do not fall under the definition of State aid. Another route would be to include such measures in the list of exemptions from the application of State aid rules as a result of the essential characteristics of healthcare.
Thus, with regards to the definitional aspect, the notion of an “undertaking involved in an economic activity” as the sole possible recipient of State aid has functioned as a gatekeeper. Two tests have been applied to entities involved in the healthcare system: a “concrete” and an “abstract” test.Footnote 5 The social security system and healthcare schemes followed the concrete test, purporting to be an analysis of the national legal frameworks.Footnote 6 Thus, MSs are sovereign to organise and finance health systems without interference from State aid rules, provided that, in so doing, they observe the principle of solidarity. Yet, sometimes the social security system combines economic and non-economic features, in which case a delicate balance needs to be struck in order to determine which aspect is predominant. If economic features prevail, then obviously State aid rules would apply. The case law is copious, with the Court called most recently in Dôvera to decide on whether the solidarity characteristic of the Slovak social security system was polluted by the fact that the providers were allegedly seeking profit and were potentially competing on the market.Footnote 7 As summarised by Advocate General Pikamäe, an activity would be considered non-economic as a function of characteristics such as the social objective of the system, the implementation of the principle of solidarity and supervision by the State.Footnote 8 The Court found that, indeed, the solidarity element was paramount in Dôvera, with Slovak measures escaping State aid control.Footnote 9
Such a “functional” approach is resurfacing for healthcare providers, such as hospitals or patient transport services. According to the abstract test, these are mostly considered undertakings as they are offering goods and services on the market.Footnote 10 Consequently, State aid law would apply to them, unless other conditions of the definition are not met, in particular “the effect on intra-EU trade”. The case law is clear that this condition does not depend on the local or regional character of the services supplied or on the scale of the field of activity concerned, and no de minimis rule exists. Footnote 11 However, the Commission signalled that Article 107(1) would not be triggered when the measure has a purely local impact. Footnote 12 In several decisions, the Commission established that funding for hospitals and medical centres had no effect on trade, as their main activity was “to provide medical care for people living in the local catchment area of each hospital”.Footnote 13 There was thus no indication of relevant cross-border investment in hospitals or of the establishment of healthcare providers from other MSs.
Another solution for keeping healthcare outside of Commission control is by considering it under the ambit of services of general economic interest (SGEI), provided for in Article 106 TFEU. This can apply to providers of healthcare or to managing bodies in case the elements of competition outweigh the solidarity element.Footnote 14 For measures to be considered under the SGEI route, four conditions need to be fulfilled, famously laid out in the Altmark ruling.Footnote 15 First, the recipient undertaking must have clearly defined public service obligations to discharge. Second, the parameters of compensation must be established in advance, objectively and transparently. Third, overcompensation must be avoided and be limited to costs and a reasonable profit. Fourth, the undertakings need to be chosen pursuant to a public procurement procedure or, failing that, the compensation needs to be determined by reference to the costs of a (actual or virtual) most efficient competitor. The Altmark judgment has now been fully incorporated into a series of Commission instruments aimed at clearly sheltering public service obligations (the so-called “Almunia package”). Therefore, measures aimed at funding “social” services (schools, hospitals, sports centres and so on) can be exempted ex ante from any control by the Commission.Footnote 16 The Almunia package is undergoing reform, and the Commission has already completed a series of consultations to evaluate the efficacy of these rules for the public health sector.Footnote 17
Such an “exclusion” approach has also been decisively adopted by the Commission in the context of COVID-19. A Temporary Framework (TF)Footnote 18 lays down the conditions for the compatibility of national measures to support the economy with EU State aid, while candidly recognising that the money for such support will have to come mostly from the pockets of national governments. The TF adapts the rules to the unfolding reality by guaranteeing a quick and efficient approval procedure, addressing an extensive range of possible state interventions and exploring various legal bases.Footnote 19 The underlying goal of the TF and the approximately 300 decisions adopted by now under the new policy is to offset the severe economic impact of measures taken in the context of the pandemic, such as lockdowns imposed ultimately with a health objective in mind. However, not a single decision deals with financial support from national funds to health services to directly tackle the new coronavirus. On the contrary, in several decisions, the Commission went out of its way to confirm that such measures would fall outside the scope of State aid control. The vast majority of decisions concern instead those health-related measures dealing with investment in protective equipment, machinery, research and upscaling of medical infrastructure and testing facilities.
This brief overview shows that it is now broadly accepted that it is a duty of a MS to provide solidarity concerning healthcare towards its citizens in need,Footnote 20 and that healthcare services have a predominantly non-economic character.Footnote 21 Thus, the application of State aid rules in healthcare is extremely limited. We argue that, in the context of a Health Union, this picture will necessarily change.
III. The future
In making sense of the case law and the Commission practice briefly reviewed above, the literature has been engulfed in laborious attempts to draw a clear line between economic and non-economic activities.Footnote 22 But these debates seem to overlook the reality that the process of European integration is also a response to how to provide public goods in a scale economy.Footnote 23 Both spill-overs among policies and the reconfiguration of State functions are expected if we are to gain benefits (and shoulder some duties) from providing public goods in a multi-level EU. Topics traditionally considered to be the expression of State functions – and thus falling outside the scope of the Treaty – have been progressively submitted to State aid control.Footnote 24 Rules have kept on expanding so as to adapt to the ever-variable shifts in the functions of the public sector, the market and the more sophisticated variety of State interventions. This is remarkably acknowledged in secondary legislation, with the Procedural Regulation confirming that liberalisation can occur de jure, through EU law, but also de facto, “due to the evolution of the common market”.Footnote 25 The interpretation given to the notion of economic activity has consequently been dynamic,Footnote 26 and there is no reason for it not to continue along the same trajectory in the context of a Healthcare Union, especially if this means more powers are to be transferred to Brussels.
1. A healthcare block exemption (with some caution)
Yet, if measures to fund the healthcare sector are caught by Article 107 TFEU, they need to be notified to the Commission, which has the discretion to approve or reject their implementation based on Articles 107(2) and 107(3) TFEU. Through the adoption of the TF, the Commission acknowledged that those measures adopted to support healthcare-related policies are somehow de facto exempted from notification. This policy stance should simply be made more transparent and accountable, and so should the rules regarding the application of the so-called Almunia package to healthcare, which are auspiciously undergoing reform as this special issue goes to press.
The model to follow is that of the General Block Exemption Regulation (GBER).Footnote 27 The GBER is based on the assumption that if public spending is targeted at growth-promoting policies that fulfil common European objectives, these State support measures are considered as “good” economic policies and thus can be exempted from State aid control. Healthcare could very well be one of these European objectives in a revamped GBER, and national expenditure will then need to be assessed as a function of its capacity to achieve such objectives and will be subject to the same criteria that are applicable to other areas of public spending: monetary thresholds, obligation for the MSs to submit an evaluation plan, the necessity to show an incentive effect of the measure adopted, and transparency. The Commission has, after all, ample experience in this regard after years of analysing health as a SGEI and determining whether a certain economic activity fulfils the conditions of the specific exemption of Article 106 TFEU.
A fitting example on how a future health exemption may look like is the TF itself and its provisions devoted to public spending for research and development (R&D). These measures appear in reality “block exempted”, with the TF subjecting grants for R&D projects on COVID-19 and other antiviral-relevant researchFootnote 28 to specific thresholds and predetermined criteria. The “European common good” is made explicit, as the rationale for governments to support R&D is not the usual prevention of knowledge spill-overs, but rather is grounded in the public policy mission of providing healthcare. The rules are thus framed on an idea of open knowledge innovation, where knowledge is either in the public domain or free to use through appropriate licensing arrangements. The TF devised a system of bonuses if more than one MS supports the projects or if there is cross-border collaboration, and it requires that the industry benefitting from the aid needs to commit to granting non-exclusive licenses under non-discriminatory market conditions to third parties within the EU.
However, a word of caution is necessary. Even if caught by the GBER, national measures are not totally immune from all scrutiny. Assurances by national authorities do not create reasonable expectations as to the lawfulness of aid measures under the GBER.Footnote 29 Meeting the GBER criteria simply creates a “présomption de compatibilité”, which can be rebutted before a national court, a national authority and the Commission. Furthermore, it is up to the Commission to “recall” the block-exempted measures and to verify compatibility with EU State aid rules.Footnote 30
2. EU-funded healthcare
If the Health Union would be complemented, as it should, by EU funding, State aid provisions would necessarily be applicable. The EU resources will still need to be managed either through a system of indirect execution, as EU policies will need be carried out by relying on national machinery, or through bottom-up mechanisms of administration, whereby all MSs in different shapes and forms carry out EU objectives.Footnote 31 Drawing on an analogy with the European Structural and Investment Funds (ESIF)Footnote 32 and its current regulatory framework, the Common Provisions Regulation (CPR), operations supported by ESIF must comply with EU law,Footnote 33 including State aid law, which is directly referred to in relation to various aspects, ranging from financial instrumentsFootnote 34 to public–private partnershipsFootnote 35 to recovery.Footnote 36
An important line of case law,Footnote 37 codified in the Notice on the Notion of State Aid, states that resources coming from the Union (eg from structural funds), from the European Investment Bank or the European Investment Fund or from international financial institutions, such as the International Monetary Fund (IMF) or the European Bank for Reconstruction and Development (EBRD), are considered as State resources if national authorities have discretion as to their use.Footnote 38 By analogy with the CPR, a series of ex ante conditionalities can also be imposed on MSs if they wish to obtain EU healthcare-related funds. An applicable ex ante conditionality means “a concrete and precisely pre-defined critical factor, which is a prerequisite for, a genuine link, and a direct impact on the effective and efficient achievement of a specific objective for an investment priority or a Union priority”.Footnote 39 The use of those clauses should guarantee respect for EU economic governance objectives and the effective implementation of a virtuous policy in EU public health.Footnote 40 Although reliable data are not fully available, the consensus is that the operation of those clauses has stimulated the improvement of the mechanisms for monitoring technological development and innovation and the investment in research nationally.Footnote 41
Conversely, if health funds will be directly granted by the EU, State aid provisions can be only partially engaged. As laid down in soft and hard law, Union funding managed by EU bodies and institutions that is not directly or indirectly under the control of the MSs does not constitute State aid.Footnote 42 Still, according to EU budget rules, it is necessary to ensure that financial instruments should only be implemented under strict conditions, so that there are no risks for the budget and there is no risk of market distortion, which is inconsistent with State aid rules.Footnote 43 More concretely, “financial instruments shall not distort of competition and be consistent with State aid rules”.Footnote 44 One can only wonder whether then certain provisions of the Next Generation EU mechanisms, especially repayment of loan conditions, may actually be subject to State aid control.
IV. Networks as the ultimate solution
The price to pay in terms of national sovereignty to spend public money as seen from a national perspective is high. So is the responsibility put on the shoulders of the Commission, and the process of balancing various interests in assessing the proportionality of national measures will be extremely delicate, given the subject matter. For good measure, we suggest that national competent authorities should be partners, and a continuous dialogue between the Commission and these authorities should be engaged whenever deciding on healthcare funding. Such an idea mirrors already successful experiences. All EU structural and cohesion funds are usually managed by specific public authorities appointed by MSs with the specific tasks of ensuring that the EU funds are spent efficiently and effectively. These authorities therefore play a crucial part, as, for instance, it is incumbent on them to identify the possible beneficiaries and the amount of funding allocated.
Involving the national level of governance can be done by making better use of existing cooperation and networks. MSs are already used to cooperating with the Commission and exchanging ideas through the Open Method of Co-ordination operating in the sector since 2004, and such cooperation is gaining momentum following its inclusion in the European Semester.Footnote 45 Experts throughout Europe cooperate on issues such as complex and rare diseases, with a significant number of European Reference Networks in place to this effect, all overseen by the Board of MSs.Footnote 46 Other links have also been established through Joint Actions Strategies set up since 2008 on specific subjects, involving a broad range of national stakeholders, non-governmental organisations and the Commission, and having considerable experience by now at administering EU funding and even enhancing experimentalist governance in the sector.Footnote 47 eHealth – a voluntary network created in 2011Footnote 48 – is gaining, little by little, powers and voice.Footnote 49 Involvement from EU’s own bodies would be welcomed as well, such as the Expert Panel on effective ways of investing in health,Footnote 50 which already advises the Commission on effective, accessible and resilient health systems, while also informing national policymaking. All of these forms of cooperation are, of course, rather niche and related to specific topics. Yet, it is expected that the creation of a Health Union would also catalyse stronger links and competences of national authorities at the more generalist level of healthcare governance as an effect of enhanced integration, following well-known models such as energy.Footnote 51 It is these authorities who will be best placed to cooperate with the Commission in managing the application of EU State aid rules to healthcare. It is within such a network that information exchangesFootnote 52 will lead to an optimal balance between national spending policies, a solidary European Health Union and fair competition.
V. Conclusions
Our modest suggestion is that a fully fledged health union cannot ignore the issue of funding. This is, after all, an important element of the iron triangle of healthcare. Whether such funding will come from the national level as before or whether the EU will participate as well, we submit that State aid provisions will need to apply. This will not necessitate an immense leap in terms of legal thinking, but will follow the same (neo-post-rainbow) functionalist pattern of European integration, with healthcare being brought within the range of economic activity by the simple evolution of EU competences and markets. In this context, rather than submitting all health spending measures to full Commission control, exemption mechanisms can shape and orientate national policies towards common European objectives. Such changes will surely disrupt national sovereignty and traditional understandings of solidarity. Perhaps such disruption is just what the doctor ordered for Europe’s healthcare systems.
