Consolidating public provider governance

There has been a long-running debate in Finland about the management capabilities of the municipal-government-driven operating structure for public health care providers (Vuorenkoski et al., Reference Vuorenkoski, Mladovsky and Mossialos2008). Having municipalities form federations that then run hospital districts – there currently are 20 hospital districts across Finland – reflect, as do many decentralized systems (Saltman and Bankauskaite, Reference Saltman and Bankauskaite2006), the country’s commitment to local democracy and decentralized authority, but also the potential for fragmented hospital management and strategic development. A widely acknowledged drawback of the existing model has been its inherent economic inefficiencies. In a period of prolonged austerity with constrained public revenues, proponents of consolidating administrative units argue that fewer hospital districts would reduce unnecessary duplication of clinical facilities and thereby free up scarce tax-based revenues to support more and/or higher quality services.

A similar argument has been made about the service delivery consequences of the separate administrative systems that municipalities use to manage hospitals, primary care and social care. Policy analysts have contended that these three separate systems should be combined in a single administrative structure that can prioritize the type of integrated and well-coordinated services which can produce a higher standard of care at a lower total cost to public resources. This same argument has recently been made by a senior policy analyst about the type of reform necessary in the similarly tax-funded English National Health Service (Timmans, Reference Timmans2015). Evidence from an ongoing trial of integrated arrangements in the South Karelia district of Finland has been largely positive, seeming to point toward reduced costs and, possibly, increased access (Erhola et al., Reference Erhola, Vaarama, Pekurinen, Jonsson, Junnila, Hämäläinen, Nykänen and Linnosmaa2014).

A further factor in the current Finnish debate has been the movement in neighboring countries around Finland toward a stronger role for the national government vis-à-vis meso and local level government bodies (Saltman, Reference Saltman2008; Jakobowski and Saltman, Reference Jakobowski and Saltman2013). The driving force in this Nordic re-centralization has been pressure for higher quality and more timely clinical care, particularly in sensitive medical specialties like cancer services. There also has been a desire on the part of these other Nordic politicians to pre-empt the ‘blame factor’, e.g. when dissatisfied citizens seek to hold national policymakers accountable for inadequate locally determined services (Magnussen et al., Reference Magnussen, Vrangback and Saltman2009). To achieve better outcomes, policymakers have sought to re-design decision-levers so that national bodies would have a substantially stronger role in the making (and in some cases, the funding) of health policy. Governments also have sought more administrative capacity and competence at the meso governmental level by consolidating that level into fewer, larger units (Jakobowski and Saltman, Reference Jakobowski and Saltman2013). Elsewhere in the Nordic Region, Norway in 2002 combined 19 fylke (counties) into five now four health care regions, with boards appointed by and – crucially – funded entirely by the national government (Ringard et al., Reference Ringard, Sagan, Saunes and Lindahl2013). Similarly, Denmark in 2007 combined 14 county councils into five elected districts, which also became dependent on national policymaking directives and on entirely national funding (Olejaz et al., Reference Olejaz, Nielsen, Rudkobing, Birk, Krasnik and Hernandez-Quevado2012). In Sweden, although a proposal put forward in 2007 by a government commission to create six to eight regional governments that would replace the 21 existing county councils has not been adopted, voluntary mergers in three parts of the country have created larger regional governments (Vastra Gotaland, Skane and Stockholm County) to operate the hospital and primary care system (Anell et al., Reference Anell, Glenngard and Merkur2012). In this Nordic environment of greater centralization of policymaking as well as mergers of regional level governments, the Finnish model of decentralization to municipal control has appeared to be somewhat anachronistic.

In 2013, reform proposals in a government draft bill focused on establishing larger public provider districts called SOTE (social services and health), which would combine municipal level social and primary care services into an unspecified number of public regions (MOH memorandum, 2013). Subsequently in March 2014, Finland’s parliamentary parties agreed a compromise structural reform that would organize health and social care into five regions, which – much like both the Norwegian and Danish reforms – would be built around existing university hospital catchment areas. Moreover, these regions would have administrative responsibility for primary and social care as well as hospital services, combining all three levels of care within the same administrative unit. These five SOTE regions, serving as administrative bodies, were meant to then contract for actual services from a maximum of 19 service production units, which would have consisted of existing public hospital, primary care and social care facilities organized into one authority within a discrete geographical area. These 19 proposed service production units would probably have followed closely the lines of Finland’s current 20 hospital federations, and would likely have the ability to contract out some services to private providers. In theory, each of the five SOTE could then decide which of the 19 care production units to contract with for specific services, creating the possibility of contestability between these provider organizations.

In March 2015, the soon-to-retire government abandoned its proposal based on five SOTE regions, officially due to constitutional problems. The new coalition government formed in May 2015 continues to express strong interest in provider-side reform. According to the most recent reform proposal, 18 SOTE regions will be created which will combine within themselves both administrative and service production responsibilities. These meso-level administrative districts are to have governing bodies directly elected by the area population (previous hospital districts had governing boards made up of representatives chosen by the member municipalities), and will make both strategic policy decisions as well as owning public provider facilities and contracting out for private services as necessary.

In an innovative effort to simultaneously consolidate service areas while still maintaining a traditional distribution of local control, the current proposal calls for only 12 of the 18 SOTE to be full-service 24/7 providers, while three of the SOTE will have to rely on the 12 for full services, and the final three SOTE will not be allowed to provide services themselves but will be required to do so in cooperation with one or more of the other 15 regions. In the initial phase, at least, the SOTE regions will not levy their own taxes, but rather will get their funding directly from the state. At present there continues to be pressure from one of the governing coalition’s members (Center Party) to allow these new administrative districts to incorporate other regional level functions in addition to health and social care. Another unresolved issue concerns whether patients will be allowed to take public funding with them if they see private providers. Substantial new legislation will be required to implement this ambitious new plan, with these and other specifics about the re-structuring process yet to be finalized.

In practice, the proposed health care reform would be essentially a public administration reform. However, the effort to re-structure existing hospital districts into SOTE regions, and, further, to remove governance and financial links from local municipalities, will be both complicated and controversial. Further, as has recently been proposed in England (King’s Fund, 2014), the reform would unify hospital, primary and social care services under one administrative roof. The expectation is that, by so doing, better coordinated, better integrated services can be provided more efficiently and more effectively, especially to the growing numbers of multiply chronically ill elderly. To the extent that the new reform would eliminate the authority of municipalities to run public health and social care providers, however, it could be seen as a breach of municipal authority in Finland, jettisoning the traditional core of health and social sector governance in Finland.

As an administrative re-organization inside the public sector, the SOTE region reform will not introduce any new or extensive market mechanisms into the proposed arrangements. Hospitals will remain directly administered units of government and there will likely be little or no open competition between public hospitals either with each other or with private hospitals for public patients or funds, even in the more populous urban areas. It remains unclear whether current patient rights to choose another hospital – which thus far have rarely been exercised – might alter the relatively fixed service environment. This is notable given the movement in a number of European tax-funded countries to create semi-autonomous management and contract bidding among providers inside the public sector, coupled with patient choice of hospital, in an effort to generate market-style incentives to improve the quality, efficiency and effectiveness of delivered services (Saltman et al., Reference Saltman, Duran and Dubois2011).

A second, under-emphasized element in this Finnish debate over re-structuring the publicly operated provider side of the health care system has been the potential role of additional non-public providers. Finland currently has some private for-profit activity at the level of municipally run primary health centers, mostly in the form of contracted out management of some public primary care centers. Similarly, contracted companies also provide a portion of elderly care services. However, there has been little recent consideration of whether private non-profit as well as private for-profit providers could add to the existing service capacity in the Finnish health system, or whether new private providers could add innovative, higher quality and/or less expensive service delivery strategies to the overall delivery system. Thus far, the debate over health reform continues to concentrate on re-centralization strategies for existing publicly operated providers. In this context, it is interesting to note that there are now over 100 not-for-profit primary and social care providers operating in England, made possible by extensive government efforts to establish the necessary legal, financial and operating conditions for such non-profit actors (Mutuals Taskforce, 2014).

Consolidating and diversifying funding sources

A second health system topic that has been debated in Finland is how to fund existing and future health care services in a more sustainable manner (Reports of the Ministry of Social Affairs and Health, 2015). This discussion reflects the economic pressure that public tax revenues in Finland are now facing, especially when combined with higher citizen expectations for better quality and more timely curative care.

A central focus of the debate has been whether to combine the national social insurance (Kela) funds currently used to partly subsidize private and occupationally provided services with existing state-provided tax-based funds, creating a larger pool of public health sector funds. A possible related question is whether to continue to send state funds for health care to municipal governments, and to continue the existing model of a single state block grant for social, health, education and culture services established (at municipal demand) in 1992. The alternative would be to send state tax funds for the health sector directly to whatever new regional bodies will be responsible for providing public hospital and primary health care services. Both funding questions are controversial.

The issue of folding Kela’s existing health sector expenditures into direct state funding of public health services has been discussed for >20 years. The debate has focused on the value of keeping the Kela social insurance-based funding for occupational and private health services separate from the public tax-based funding pool. Proponents of ending this tripartite public sector structure have argued that using public funding to pay private providers (both private medical providers and corporate occupational care) was socially unfair, in that the oldest and other poorer and/or vulnerable citizens often did not have access to these services. These proponents of consolidation also argue that private doctors often referred their private-pay patients to public hospitals more frequently than did publicly employed doctors in primary health centers, in part to impress and keep those private patients, and thus private doctors were also obligating a disproportionate amount of tax-based public funds for their private patients. In the view of those who have opposed keeping Kela funding part of private practice in Finland, Kela’s funds could be put to more equitable use through a central ‘coordinating body’ linking the existing network of both publicly and privately operated primary health centers and hospitals.

While those who made these arguments started doing so before the Finnish economy’s difficulties began in the early 1990s, they have recently renewed efforts to capture this additional revenue stream for publicly operated providers. In response to this suggestion, opponents of the proposal to ‘end the multi-channel system of financing’ (as it is termed) typically refer back to the original logic presented by Tapani Purola, one of the designers of Kela’s role in subsidizing privately delivered services. Purola contended that this supplemental funding structure would serve as a ‘steam valve’ to allow lower as well as middle income patients who were not satisfied with publicly operated providers to receive care from the private providers (Haro and Purola, Reference Haro and Purola1972). A more recent argument in favor of keeping the Kela subsidies is that cutting subsidies to private production would inevitably increase the number of public patients, further increasing waiting times in public health centers that are already unacceptably long. It is worth noting that both employers’ and employee’s labor market organizations have traditionally been strong proponents of the autonomous occupational care service development with a separated funding arrangement.

This debate about the future role of existing public funding channels takes on additional significance in the current context of prolonged public revenue austerity that has also appeared elsewhere in Europe (Pavolini and Guillen, Reference Pavolini and Guillen2013; Thomson et al., Reference Thomson, Figueras, Evetovits, Jowett, Mladovsky, Maresso, Cylus, Karanikolos and Kluge2014; Maresso et al., Reference Maresso, Mladovsky, Thomson, Sagan, Karanikolos, Richardson, Cylus, Evetovits, Jowett, Figueras and Kluge2015). In Finland, the biggest relative growth has been the increase in employer funding, but it is still just 3.5% of total health care costs (these statistics are for 2013). The present problem, however, is not the absolute lack of resources, but rather that expenditure levels reflect opposite incentives in the public as against the private delivery sectors: public health centers have a global budget and, therefore, any visit directed to other providers is just saving money, while private providers, including occupational care, make money from each new visit since they are paid on a fee-for-service basis.

Given the ongoing structural weakness of tax-based funding – and the associated economic reality that public taxes are unable to rise without further damaging macroeconomic growth, job creation and national income – a central funding question going forward would seem to become quite different from whether to collapse Kela’s private and occupational funds into the existing state tax-based funding pool. Rather, it may well be that sustainable future funding can be more readily achieved by better and more fully harnessing the existing advantage of having social insurance and private dimensions to the present health care funding structure. From this rather different perspective, the reform challenge to the public sector becomes one of better coordinating costs and services with social insurance and, simultaneously, the two different types of private sector payment mechanisms: e.g. out-of-pocket payment for medical services by individuals and households, and two types of non-state collective payment mechanisms – e.g. employer-paid employee and parent-purchased children’s private insurances.

In the past, proponents of a wholly public tax-based system have rejected as inequitable any form of private insurance, arguing it is dependent on premiums that differ by different demographic (age, sex) or health status category, and that have dramatically different marginal costs for low-income as against high-income individuals and families. This argument, however, has more or less lost its validity in Finland: almost all European insurance-based systems provide physician visits more equitably than the Finnish system (van Doorslaer et al., Reference van Doorslaer and Masseria2004).

Yet in a financial environment where some form of private sector funding needs to expand, the appropriate policy question may well become not whether private insurance is bad per se, but whether private insurance can provide a collective risk-sharing mechanism if properly regulated. A key question may therefore become whether national policymakers could write socially responsible legislation that could supplement existing public sector provision for expensive acute inpatient services with collective but non-state operated payment mechanisms supplied by several alternative forms of private voluntary insurance. This may not be the preferred choice of Finnish policymakers, however, it would appear to be strengthening the part of the existing funding system that would itself seem to be at least somewhat collectively based and thus more socially responsible than individual self-payment. It may be worth noting here that, in a variety of universal-access-based, developed country health care systems (The Netherlands, France, Belgium, Switzerland, Israel), such forms of supplemental privately purchased insurance have long played an important role in financing a portion of the overall supply of health care services (Thomson et al., 2014). In addition worth remarking on is that the large private insurer mentioned earlier (OP-Pohjola) bases its compensation scheme on capitation rather than fee-for-service – in effect mimicking to some degree the public system’s form of payment to providers.

A second dimension of preparing for a health system future in which tax-based public funding will play a smaller role is to consider developing a variety of new, publicly structured and supervised funding mechanisms with publicly created and regulated incentives that seek to stimulate more private individual funding for health care expenses. One potential approach to supplementing funding for clinical services may be to partially re-establish the former role of non-profit private collectives that existed before the post-World War Two growth of the European welfare state (Saltman and du Bois, Reference Saltman and DuBois2004). Evolved from workers associations and labor unions, these funders sought to provide members with protection against the cost of disease and death. In today’s world, they hold out the potential to generate financial protection against the costs of illness via collective contributions. Existing social health insurance funds in countries like Germany and Austria continue to function as forms of this non-profit collective model tied to membership (not citizenship or shareholdership) (Saltman et al., Reference Saltman, Busse and Figueras2004). One could argue today these non-profit private collective arrangements exist in a quite different funding structure than the tax dominated arrangements that characterize Nordic countries like Finland (Magnussen et al., Reference Magnussen, Vrangback and Saltman2009). These re-created mechanisms should not be dependent on (permanent) employment, however, given that present day demographics and working life dynamics are less likely to support the traditional non-profit approach. A further concern would be to adapt these non-profit organizations to fit into a diverse funding arrangement as one of several simultaneous methods of paying for health services.

These two additional funding options, which would stimulate more private sector collective funding mechanisms, are themselves internally compatible each with the others, and also with continued public sector provision. However, this approach to health sector funding would carry a range of implications as to how best to structure future funding for health care services in Finland overall. Given anticipated further weakness in tax revenues for public providers, one question is whether it makes sense politically or clinically to take away the Kela subsidy from use of private sector providers? How likely is it that public tax funding would in fact go down if Kela monies were incorporated into a single publicly sourced funding system, on the argument that health care will have become relatively better off compared to other important public sector obligations? Might it not make political sense to take advantage of the existing multi-channel funding structure, to harness its diversity of sources and funding capacities, as a way to ensure that Finns retain a range of different access routes to needed health care, and to preclude additional service burdens on an already overburdened public delivery system?

One further dimension of the funding debate is that while legislation and regulation can change-or abolish-the two different components of the public sector funding mix (e.g. state grants and Kela national insurance), the behavior in the existing private insurance sector reflects decisions made separately by the private citizenry. To be sure, national policy can influence these decisions at the margin, especially through tax policy. However, the overall mix between public as against privately funded services in Finnish health care is not exclusively a government decision, but rather a balance between public and private initiative. If public sector funding continues to falter, Finland’s private funding channels will most likely expand to meet some of the underserved demand.

According to the most recent proposal put forward in November 2015, the multi-channel funding will be dismantled and a single channel model will be introduced instead. Interestingly, the proposal states this will be done taking into account the role of occupational health care. At the moment, this reference to occupational care seems to be interpreted in quite different ways by the different political parties inside the government coalition. Specific propositions will have to be hammered out before it is possible to assess the true implications of this funding reform.