Germany’s hospital system works

Canadian newspaper headlines never fail to remind us that emergency-room overcrowding and long waiting times for surgery have not diminished, despite numerous election promises.

And yet, these phenomena are virtually unknown in many European countries that also have universal health-care coverage. What are they doing differently?

Simply put, they understand that universality is not incompatible with private involvement and competition in the delivery of health care.

Germany is a case in point. Although it has a universal system and spends about the same as Canada on health care (around 12 per cent of GDP), its citizens are much better served. Germany was ranked second in health-care system performance among 34 countries evaluated in the most recent Euro-Canada Health Consumer Index, whereas Canada was ranked 25th.

What is the German model in health care?

Roughly 90 per cent of the population is covered by statutory health insurances (SHIs) whose budgets are mostly raised through income-based contributions. Other citizens are insured by private health insurance, as higher income or self-employed people can choose to opt out of SHIs.

In the last two decades, so many public hospitals have been privatized in Germany that 33 per cent of the country’s hospitals (679 out of a total of 2,064) are now private for-profit hospitals, up from 15 per cent. The term “private hospital” is used in Germany to describe hospitals that are not owned by any level of government (municipal, state, federal) or any other public bodies. They usually operate within the public health system and treat all patients, not just privately insured ones. Hospitals compete for patients, who are free to choose to be treated in any of the hospitals that operate in the public health-care system.

This system leads to much more patient-oriented provision of health care; it also prevents the emergence of rationing, prioritization of treatments and waiting lists. Thus the length of waiting times for medical procedures is much shorter than it is in Canada.

Management’s mission to generate operating profits seems to be one of the main advantages of private for-profit hospitals in Germany. Because investors in private for-profit hospitals anticipate a competitive rate of return on their investment, the pressure on hospital management to perform well is much higher. Therefore, necessary reorganization of processes within the hospital are executed faster and restructuring plans are carried out more quickly.

Private for-profit hospitals are more focused on their core business: curing patients. As a result, such secondary processes as catering, procurement or facility management are usually assigned to external service providers. Public hospitals tend to keep many services in the hospital that are not part of their primary missions.

Studies have shown that the medical quality of former public hospitals in Germany has significantly increased after their privatization. The number of medical doctors per hospital bed has increased, for example.

But improvements in medical quality are not the only benefits. An analysis of all privatized hospitals in Germany between 1997 and 2007 showed that within the first four years there was an increase in efficiency of between 3.2 per cent and 5.4 per cent above those hospitals that had not been privatized. This leads to the conclusion that privatized hospitals provide better care for less money.

The evidence from Germany suggests that hospital systems with more competitive elements, and where private ownership is allowed, provide higher quality care, investment levels and technological standards compared to an exclusively public health care system.

Frederik Cyrus Roeder est chercheur associé à l’IEDM, Yanick Labrie est économiste à l’IEDM.