Health and finance in the post-austerity context: the Portuguese experience

Abstract

Abstract In March 2018, a Mission Structure (EMSPOS) was created in Portugal, under supervision of both Ministries of Health and Finance, to analyze the economic situation of the National Health Service (NHS), and propose recommendations to ensure its financial sustainability. The main concern was the recurrent cycles of overdue debt of NHS hospitals, which reached, in September 2018, more than 1.3 billion euros. These debts cycles, mainly to the pharmaceutical industry, were viewed as a combination of (i) under-budgeting during and following the Great Recession; (ii) expenditure growth related to population aging and new technologies; and (iii) a hospital financing and governance model that provided few incentives towards adequate management. Hospitals' overdue debts limit their autonomy to assume investment compromises, while they deteriorate the NHS negotiation power vis-à-vis suppliers/creditors. Also, these debts were paid through financial bailouts, which shifted from punctual to predictable and regular, constituting an “indebtment reward” that destroyed any incentive towards efficiency and cost containment. The challenge faced by EMSPOS was to ensure better budgets and autonomy to hospitals, both indispensable to face growing needs (the health sector claim), while providing the right monitoring and incentives to avoid new cycles of debt, inefficiencies, and unsustainable expenditure growth (the Ministry of Finance claim). This last request was reinforced by the Post-Program Surveillance (PPS), by the European Commission and Central Bank, that “measure Portugal's capacity to repay its outstanding loans”. The EMSPOS proposed a new governance model that included better budgets with an efficiency-related performance component, a new management contract for hospitals' executive boards, and a path towards more investment autonomy, through the approval of “Activity and Budget Plans”. We will discuss the details of this new models and the challenges of its implementation. Key messages Portuguese NHS hospitals have been facing regular cycles of overdue debt, related to under-budgeting and inadequate governance models. Better budgets and hospital autonomy are needed to face growing needs (MoH claim), and right incentives are needed, to avoid inefficiencies and unsustainable expenditure growth (MoF claim).