System reform in integrated health systems.

Analytically speaking, one can classify European health systems within two broad categories, or two "ideal types,"[1] dichotomized according to the structure of the financing system. While some are predominantly tax-based in the source of their revenue, others are predominantly social insurance-based. The tax-based system often is referred to as the Beveridge model, associated with Lord Beveridge from the United Kingdom. The national health service in the United Kingdom is a classic example of a tax-based system. The social insurance model typically is called the Bismarck model and is associated with Germany. It is found in other Germanic-speaking areas of Europe as well as in France and the Netherlands.

This distinction on the finance side of health systems is one that some health economists (and apparently the Congressional Budget Office in Washington) view as unimportant. They contend that whether one speaks of a mandatory social insurance premium or a tax that comes out of general revenues, one is still talking about obligated public sector expenditures. However, there are distinctions that emerge between these two types of financing arrangements when you look at health systems. In Europe, the two different financing systems tend to be associated with substantially different organizational characteristics. Tax-based systems (the Nordic countries, Britain, Ireland, the Spanish system, and the predominant segment of the Italian system) have certain notable organizational characteristics. Physicians, typically, are on salary or under some type of capitation arrangement. Tax-based systems typically have mostly publicly operated hospitals (although publicly operated doesn't necessarily mean nationally administered, as in the United Kingdom, but can also include regional arrangements, as in Sweden, or municipal ones, as in Finland). Tax-based systems typically cost less to run; they usually absorb 2 to 3 percentage points less of gross domestic product than do social insurance systems. Both tax-based and social insurance systems cost substantially less than the United States system, of course, which is predominantly private insurance-based. Moreover, tax-based systems appear to place more emphasis on primary care, on prevention, and on social and home care services. They tend to be a more integrated health system.

Social insurance systems typically have private fee-for-service doctors, have a high percentage of private not-for-profit hospitals, and cost more to run, typically several percentage points more of GDP than tax-based systems. (The one exception to this would be the Canadian system, which, unlike most tax-based systems, has a fee-for-service structure for reimbursing physicians and is also more expensive to operate.) The German, French, Swiss, and Dutch systems run around 8-9 percent of GDP. Publicly operated systems tend to range lower, although Sweden is an exception at 8.6 percent of GDP. Also, social insurance-based systems tend to put less emphasis on primary care, on prevention, or on social care. Because it is Northern European health systems, particularly Nordic health systems, that tend to be more integrated in how they structure themselves, the remaining sections of this article will focus on current reforms taking place in those health systems.

Nordic Health Care

In the five Nordic countries (Finland, Sweden, Denmark, Norway, and Iceland), health care is very much a collective social good. It is not a commercial commodity to be bought and sold on the open market. The notion that health care is a social good establishes an important context for what takes place in these tax-based systems. On the finance side, the motivating force is not profit but solidarity, which means that everybody is in the same system. Access to services on the production side is based on residency. With a collective good approach comes universality. If one moves into a new district, one is entitled to comprehensive care on the day that one moves in. It doesn't matter if you are young or old, whether you are employed or not employed, or whether you are sick or not sick. Health care in the Nordic Region is not only thought of as a collective good, but is also structured as a public service.

Tax-based systems spend about half as much as we spend in the United States. As indicated in the table on right, Denmark spent 6.5 percent of GDP on health care in 1991. The United States spent 13.2 percent in the same year. However, for 1992, Denmark's figure will be very close to 6.5 percent, while the U.S. figure went to 14.2 percent, and the United States spent 15 percent in 1993. In Finland and Sweden, the numbers are up a little bit. Finland actually went from 7.5 to 8.9 percent. Sweden's went from 8.6 to 8.8 percent. In both those countries, total expenditures in the society fell. During the past two years, Finland's economy has gone through what they now call "the depression." Unemployment has gone from 3 to 20 percent. The reason is that a small but substantial segment of its economy consisted of barter trade with the then Soviet Union. When that trade collapsed, the part of the economy involved in it was no longer gainfully employed. Regardless of the talk about recession in the United States, the denominator did not shrink much in this country, probably only about 1 percent.

In terms of care, what the Nordic countries get for what they expend is notably different from the case in the United States. In Copenhagen, for example, when one arrives at the airport, there is a little booklet available called "This Week in Copenhagen." It has a listing of events, of museums, and of telephone numbers for national embassies and airlines. It also has a little paragraph that says if you need emergency hospital care, just present yourself and it will be taken care of free of charge. Sweden has a relatively harsh winter climate. For people who have multiple sclerosis, it can be quite difficult, since the cold can have a negative effect in terms of the process of degeneration caused by the disease. What the Swedish public health system has done, in the form of the federation of county councils, is to set up a treatment center in Tenarefe in the Canary Islands. If an individual is a suitable candidate, as nominated by his or her primary care physician, he or she will be sent for a 10-week course during the winter months, paying only the charter airfare. The rest of the treatment, which is an intensive physical therapy program, is paid from public monies. Thus, at the end of the winter, the patient will not only not be worse from the winter weather, but will actually be stronger.

Many people in the United States are often skeptical when they look at other health care systems. They assume that those systems can't be as good as the services one receives here. There are stories concerning the United Kingdom, for example, about people over 55 not receiving dialysis and so forth. While there are problems in countries like the United Kingdom with waiting times for certain elective procedures, it is important to keep these issues in perspective. The Nordic countries, for example, have low infant mortality rates, much lower than in the United States. Infant mortality in most of the Nordic countries is about 5 1/2 to 6 per 1,000 live births. These countries also have broad comprehensive frameworks in which they deliver services, not only primary and preventive care but also nursing home care and what are called service homes" (sheltered housing), both of which are provided by municipalities on a publicly funded basis. Nordic health systems also include a wide range of social and home care. Three or four years ago, the complaint in Sweden was that, when one had social home care, there were too many people coming to the house. People came to help with the shopping, other people came to help with dressing, a group came every week to do light cleaning, another group came once a month to do the heavy cleaning, and a painting crew came every six months. Again, one might draw a comparison with the all-but-invisible social and home care services typically provided by private insurance policies in the United States.

Current Reforms

If things are going so well, why are reforms being undertaken in the Nordic countries? Essentially, these systems are responding to the same pressures that currently affect health care systems across the industrialized world. When one looks at the 24 countries of the OECD (the Organization for Economic Cooperation and Development, based in Paris), nearly every member country is involved in one form or another of reform. This reform process can be attributed to three external factors and three internal factors, depending on the configuration of the health care system and of the broader society. Two external factors create pressure for higher rates of health care expenditures: demography (the aging of societies) and technology (particularly the cost of certain invasive procedures, but also certain imaging costs related to noninvasive activity). A third external factor, which creates strong pressure not to spend more on health care services, is economics. Ongoing regionalization in Europe and globalization in terms of both markets and products have generated pressure for countries to invest in higher rates of national productivity. As a result, there are caps in many countries on total expenditures for health services.

The three internal pressures reflect translations made from these external pressures by national policy makers. First, there is pressure for increased efficiency, i.e., more productivity for the same amount of money. The second pressure is for greater levels of effectiveness, which has to do not only with intermediate products but also with outcomes from health services. The third issue, particularly important in Northern Europe, is responsiveness to patients: the pressure to respond directly to what patients want in terms of their preferences, not only logistically (in terms of which doctor and which hospital) but also increasingly in terms of participation in the actual clinical treatment decision.

Given this configuration of pressures, all the tax-based systems are shifting their focus in terms of how national policy is directed. In addition to traditional macro cost containment  global budgeting), or putting a ceiling on the amount of money that goes into their systems, many national policy makers are now concentrating on micro cost containment. Micro efficiencies involve encouraging individual institutions, hospitals, and health care centers to become more efficient internally. This is something that really hasn't been done previously. Nordic policy makers have come to realize that precisely because they were so successful with macro economic cost containment, they had ignored efficiency at the institutional level. In effect, because they succeeded with aggregate controls at the political level, they had not required tight management internally. With these new pressures, and the reality that they are going to have to do more with existing or reduced funds, policy makers are now looking seriously for efficiencies at the micro level. That is a major change. However, national planners are trying to create this emphasis at the micro level without jeopardizing the equality and the solidarity that continue to characterize their welfare states.

Reforms are moving along fastest in Sweden. While they are taking place at the national level, they are being developed and introduced primarily at the county level. In Sweden, there is a clear distribution of health sector responsibilities. The national government sets the overall strategy (what the Swedes refer to as the frame), but the counties are responsible for operating the health care system within that frame. Essentially, the national government provides the strategy and the 26 counties undertake the operation. At least two counties started major reforms in 1990 and 1991. By now, almost all 26 counties are involved in one form or another of organizational reform.

Finland also introduced a major restructuring of its health financing system in January 1993. In Denmark, the national government says it is not going to undertake reform. However, in October 1992, it introduced patient choice, allowing patients to choose hospitals and doctors across county boundaries. Money will inevitably follow patients between the counties, a process that in turn will set off competition between hospitals and between counties. So, despite its disavowals, Denmark appears to be following the other Nordic countries down a relatively similar path.

The tax-based health systems in Sweden and Finland, as well as in the United Kingdom, are not changing on the finance side; their single-source financing structures are staying in place. The changes are on the production side.[2] Nordic health systems previously had what could be called a command and control planning model, e.g. a Weberian bureaucracy. Information went down the hierarchy, and reports went back up. Because of the external and internal pressures noted above, however, the command-and-control model is no longer seen as adequate. An alternative approach posed during the 1980s was the theoretical notion of a neoclassical market. This reflected the Zeitgeist of Reagan and Thatcher, with the notion that health care was a commodity that could be distributed by the market. In reality, of course, there are no health care systems in the world that actually work according to the neoclassical market model. Even in the United States, there is a regulated market, which is to say there are elements of the market but within a framework that is structured by federal and state governments.

Given the inadequacies of traditional command-and-control bureaucracy, on the one hand, and neoclassical market models, on the other, Nordic policy makers are seeking to create a hybrid model, what is labeled "planned markets" in the figure on right.[3] The key to what is under way in Northern Europe is that the political authorities are planning the market. National policy makers are extracting specific market mechanisms out of the neoclassical model, stripping them of their relationship to the private ownership of capital, and injecting those mechanisms back into the old command-and-control structure, seeking a new set of behavioral incentives for health care providers.

There are several different ways this can be done. One, which some Swedish counties are working with, can be called "public competition." This essentially involves creating competitive incentives among different publicly owned hospitals that have been restructured as public firms. These institutions stay in the public sector; they are not privatized. Competitive behavior is generated in this model through patient choice of public provider, with the money following the patient. The market mechanism, in effect, is the patient's choice of provider - consumer sovereignty.

The reforms taking place in Sweden are occurring at the national level with regard to broad policy issues and inside institutions at the county level with regard to specific managerial change. In terms of the national level, patient choice was introduced officially in April 1991. Patients can now choose a provider anywhere in the country, and public money from county taxes follows them. A second nationally led reform concerns elderly care. Until now, most health care services in Sweden have been delivered at the county level. The 1992 reform has taken responsibility for nursing homes and for residential care and pushed it down to the municipalities. This was done so that residential as well as social and home care would be in one set of administrative hands, to facilitate integration of service delivery. It is paid for by municipal taxes supplemented by monies from county taxes. This reform has become successful in only 15 months, which suggests that there will be further decentralization from the counties to the municipal level of service delivery activities.

Another interesting Swedish experiment is integration of rehabilitation, particularly rehabilitation of work accidents, into the regular delivery system for health care services. The notion is to get workers back to their employers sooner rather than later. Although the Swedes have put a fair amount of money into this, it is not yet clear that it is going to work well. There also is an initiative to try and organize primary care doctors more around family doctors and less around a clinic model. Further, there are a number of interesting experiments at the individual county level, most of them organizational measures seeking to enhance incentives for individual providers to be more efficient, more effective, and more responsive to patients.

Much the same type of reform is under way in Finland, but the reforms focus not on counties but on municipalities. Individual municipalities, some of which have only 7,000 people, are now receiving national subsidies of 31 to 69 percent of total costs not only for primary care, but also for hospital services. One difference between Finland and Sweden is that patients in Finland don't have choice of hospital or specialist in the public health system. The key element in the Finnish reforms, however, is that the local municipalities, and the primary health care units that they operate, now control the hospital budget. This has been achieved within a democratically accountable structure and has been done without changing the existing tax-based, single-source system of finance. What one can see again is decentralization and a restructuring of incentives inside the public system.

Concluding Points

Several broad conclusions can be drawn about the ongoing reforms in Nordic health care systems.

* These countries are retaining and even strengthening their tax-based systems of health care finance. These systems are introducing competitive mechanisms on the production side, not on the finance side.[2] That is consistent with what is taking place in the rest of the OECD, with only three exceptions-the United States, the Netherlands, and New Zealand. Thus, the great majority of OECD countries are seeking to maintain a single-source financing structure.

* Nordic countries are maintaining and strengthening what is predominantly a public provider market. They are not privatizing very much of anything. Despite what newspapers in the United States claim, these countries are not throwing away their welfare state objectives, but rather are seeking to reinforce them.

* Nordic countries are looking at micro-level institutional efficiency, seeking to add it to existing macro-level measures.

* The Nordic counties, despite all the decentralization, are quite interested in maintaining strong central government control as they introduce market mechanisms. This may appear as counter intuitive. There is an assumption, put forward particularly by health economists, that, if one moves toward more market-oriented mechanisms among hospitals and doctors, the government role (the regulatory role) should recede. The reality of what is taking place both in Sweden and in the United Kingdom is that policy makers are strengthening the national role, but in a different direction. Instead of focusing on inputs and planning of resources, they are focusing on monitoring and evaluating outcomes. The role is stronger because they are concerned about overall national outcomes in the context of an explicit national health policy. Thus, the experience from Northern Europe suggests that the more one relies on markets to deliver health services, the more government is necessary.

All of these points have important implications for the proper shape of health care reform in the United States.

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References

[1.] Weber, M. The Theory of social and Economic Organization. New York, N.Y.: Free Press, 1964. [2.] Saltman, R. "A Conceptual Overview of Recent Health Care Reforms." European Journal of Public Health 4(4):287-93, 1994. [3.] Saltman, R., and von Otter, C. Planned Markets and Public Competition: Strategic Reform in Northern European Health Systems. Bristol, Pa., and Buckingham, U.K.: Open University Press, 1992.

Richard B. Saltman, PhD, is Professor of Health Policy and Management, Emory University School of Public Health, Atlanta, Ga.