Chronic Costs

German Hospitals on Life Support

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The German hospital industry has turned into a chronic patient.
  • Why it matters

    Why it matters

    • Striving for more efficiency can be a vicious cycle, because many hospitals lack the money to invest in necessary medical equipment or better networks.
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  • Facts

    Facts

    • About 14 percent of German hospitals are threatened by bankruptcy.
    • Nearly 60 percent of hospital mangers said they could not invest enough in their facilities.
    • Closing a small hospital with less than 100 beds can cost up to €25 million ($26.8 million) .
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    Audio

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Revenues may be rising, but many German hospitals will lose money this year, according to the latest industry poll obtained by Handelsblatt.

The study by Roland Berger consultants found that more than 40 percent of hospitals in Germany are facing deficits. And 92 percent of hospital managers expect that it will only get worse in coming years.

In addition, nearly 60 percent of hospital mangers said they could not invest enough in their facilities, either because they aren’t making enough profit or because investment grants from states are insufficient.

“Hospitals have become chronic patients,” said Peter Magunia, an expert in health care at Roland Berger Strategy Consultants. “Restructuring has almost become a permanent task.”

Of hospitals surveyed, 70 percent were going through restructuring. The sample size of 40 hospitals is comparatively small, but it represents the general structure of the German hospital sector, from their size down to the trusteeships.

More than 200 money-losing hospitals could close in Germany without jeopardizing the level of health care.

Hospitals are suffering for several reasons, according to the study.

For one, the €82 billion German hospital industry is considered to be overstaffed.

Reimbursements are capped while costs are rising faster than revenues, meaning more hospitals are faced with increasing deficits.

“The gap continually widens, so all hospitals will at some point be unable to pay,” said Karl Max Einhäupl, director of the Charité Hospital in Berlin, in an interview with Handelsblatt earlier this year.

Mr. Einhäupl noted that it wasn’t unneeded hospitals that were going out of business, but rather facilities that didn’t have top management.

More than 200 money-losing hospitals could close in Germany without jeopardizing the level of health care, according to industry expert Boris Augurzky of the Rhine-Westphalia Institute for Economic Research, or RWI. That could save hospital operators and states €600 million annually, or about $650 million, he estimated.

Mr. Augurzky bases his calculations on annual hospital ratings that RWI publishes with partners. According to the reports, 14 percent of German hospitals are threatened by bankruptcy due to higher losses, but their deficits are balanced out by other hospitals still making profits.

In attempts to become more efficient, hospital directors are using a multi-pronged approach. On one hand, they try to raise fixed revenues by raising treatment payments. On the other hand, costs are being reduced across all areas.

The Roland Berger poll shows that hospital directors see the most potential for upping efficiency in the medical area, for example, through better use of OP room capacity, laboratories or radiology, as well as in a more efficient organization of medical services.

“Being more efficient in the medical servicer area turns out to be a vicious circle for many hospitals,” said Mr. Magunia, the health-care expert at Roland Berger. “In order to deliver more efficient medical service, it is often necessary to invest more in new equipment or better networks. And mostly, hospitals lack the money.”

Because hospital managers are having to make difficult changes, they also have to deal with internal opposition. The recent study reflects that in the high turnover rates of hospital management – over half of participating hospitals changed at least a part of their management leadership in the past few years.

Many hospital managers hope for economic improvements in the future, so they can expand specialist areas that deal with a growing share of older patients. The strategy makes sense given demographic shifts in Germany, said Mr. Magunia.

Current federal health policy promises little relief for hospitals. More than 80 percent of hospitals surveyed have negative views of the government’s health policy.

For example, hospital managers don’t believe the planned €1 billion fund to close money-losing hospitals will help much – especially when it can cost up to €25 million to close even a small hospital with less than 100 beds, according to Mr. Magunia.

Introducing quality-oriented compensation, however, would mean more money for hospitals, according to more than half of those polled. Under that plan, hospitals that produce poor medical services would also be reimbursed less. But such measures are not law yet – and to have an effect, they would first have to be in place for several years.

 

Maike Telgheder covers the healthcare industry. To contact her: telgheder@handelsblatt.com.

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