June 26, 2014

One-in-Two German Hospitals Unable to Invest in New Initiatives in 2012, According to the 10th Annual Hospital Rating Report by RWI, Accenture and HCB

BERLIN; June 26, 2014 – Due to increasing financial challenges, one-in-two German hospitals were unable to make investments in new initiatives during 2012, according to new research released at the 2014 Capital Congress in Berlin. If no action is taken, the report estimates that 13 percent of hospitals could be forced out of the market by 2020.

The 10th annual German Hospital Rating Report was jointly conducted by RWI, Accenture and HCB. The report assessed the financials of more than 1,000 hospitals in Germany, including 617 financial statements from 2011 and 175 financial statements in 2012.

Despite receiving government assistance through 2014, hospitals will need to take action if they intend to avoid a deepening financial situation from 2015 and beyond, as costs continue to rise at a rate faster than sales. With an accumulated backlog of 15 billion euros in investment needs to-date, Germany hospitals will need to find an estimated 5.4 billion per year to keep up with current demand. However, this is complicated by the fact that the average hospital lacks the capital to commit to long-term investments.

Hospital Market Performance: Capacity and Investment
Despite a decline across all regions in Germany in 2012, the financial performance of hospitals was rated the highest in the eastern federal states, followed by North-Rhine Westphalia and Rhineland Pfalz/Saarland. For the first time, public hospitals with small supervisory bodies performed the best. When evaluating the ownership structure, public-owned hospitals averaged weaker financial performance than nonprofit-private hospitals or private hospitals in general. In 2012, 28 percent of the public hospitals were financially “in the red”, but that was only the case for 16 percent of the nonprofit -private hospitals and 3 percent of the private hospitals. The situation of many public hospitals has been especially critical in Bavaria, Baden-Wurttemberg, Hessen, Rhineland-Pfalz/Saarland and in the Northwest.

The capacity of German hospitals remained on par with previous years in 2012 while the number of hospitals dropped 1.4 percent to 2,017. According to the report, the average 500-bed hospital maintained a utilization of 77 percent in 2012. Private hospitals increased their market share, in terms of the number of beds, up slightly from 16.3 percent to 16.8 percent. The market share of public hospitals declined from 49.3 percent to 48.8 percent ; the share of nonprofit-private hospitals remained unchanged at 34.4 percent. The advantages of high specialization, quality of care and hospital productivity were all noted as important interdependent factors.

Germany Hospital Market Recommendations
There are four strategies the report authors recommend for improving the German hospital market: higher prices for hospital services, more capital for investment, increased productivity and phasing-out less profitable institutions. While higher prices would improve a hospital’s financial figures, a comparison of OECD countries shows if the region has high healthcare expenditures, such as Germany (11.3 percent of GDP), the strategy is unlikely to yield many patient benefits. Enabling more capital for hospital investment, the report suggests a federal fund be established to help trigger the structural changes required for addressing the future needs of hospitals. For example, a federal fund could offer hospitals interest rate rebates for loans, a 3 percentage point discount on interest rates or a one-time investment of one billion euros for funding a hospital closure or reallocation, such as a social compensation plan.

As the number of aging citizens rises over the next decade, German hospitals are likely to prioritize consumption needs before investment if they are not equipped to remain productive within the demographic shift. However, if hospital productivity declines throughout the demographic shift, the German healthcare system is likely to encounter a structural loss. Along with hospital productivity, the report shows reducing hospital density could enhance efficiency. If one-in-seven hospitals were closed, the density in Germany would still be in line with the average for other European OECD-states. The density is high enough today that a smaller number of hospitals, even in rural areas, would, in most cases, not threaten the security of supply. At the same time, small hospitals in most cases can’t compete with large hospitals with regard to quality and profitability.

The report suggests network-wide hospital productivity could be enhanced at a local, regional and national-level with the deployment of effective supervisory boards, sufficient investments, greater specialization, coordination of care, evidence-based standards, electronic networking and multi-channel customer service. The advantages of these capabilities could be enhanced by having network-type medical care that focuses on the patient, if outpatient care and stationary services are added to the inpatient acute treatment.

This conflict between quality and proximity of the medical care should be made more transparent to citizens. It should also be made clear that citizens will have to give up other communal services if a continuously deficient hospital is supported with community funds. In this regard, it would be important to define a national minimum density level standard for hospitals.

The study, “Hospital Rating Report 2014: Lack of Investment: Ways Out of the Investment Trap,” was authored by Dr. Boris Augurzky (RWI) and Dr. Sebastian Krolop (Accenture).

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Jenn Francis
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