Incorporation of public hospitals: A “Silver Bullet” against overcapacity, managerial bottlenecks and resource constraints?

This paper presents a new approach for incorporating public hospitals by contrasting the experience from an “old” EU country (Austria) with a new EU member state (Estonia). In the EU (including the new member states) hospital overcapacity is a serious problem, from a technical, fiscal and political perspective. Few countries have succeeded in establishing an appropriate framework for resource management and for guaranteeing long-term financial viability of their hospital network. Many countries are in search of effective policies for improved hospital management and more cost-effective resource use in the health sector. Over the past decade, experiences in Austria and Estonia have emerged as innovative examples which may provide lessons for other EU countries and beyond. This paper describes the evolution of public hospitals from public budgetary units and public management to incorporated autonomous organizations under private corporate law, resulting in a contractual relationship between (public) owners and private hospital management. Outdated and inefficient public sector structures were replaced by more agile corporate management. The arrangement allows for investments, operating costs and budgeting according to strategic business goals as opposed to political “fiat”. Shielding hospitals from local political influence is an important aspect of this concept. Horizontal integration through networking of public hospitals and introducing private management helps create a new corporate culture, allowing for more flexibility to achieve efficiencies through downsizing and economies of scale. Based on contracts the new balance between ownership and managerial functions create strong incentives for a more business-like, results-oriented and consumer-friendly management. This was achieved both in Austria and Estonia in a politically sensitive way, adopting a long-term vision and by protecting the interests of hospital owners and staff.