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Health Policy journal homepage: www.elsevier.com/locate/healthpol
Corporate governance in Czech hospitals after the transformation Petr Pirozek a,∗ , Lenka Komarkova b , Ondrej Leseticky b , Tatana Hajdikova b a b
Masaryk University, Faculty of Economics and Administration, Lipova 41a, Brno, Czech Republic University of Economics Prague, Faculty of Management, Jarosovska 1117, Jindrichuv Hradec, Czech Republic
a r t i c l e
i n f o
Article history: Received 12 September 2014 Received in revised form 13 April 2015 Accepted 3 May 2015 Keywords: Management Corporate governance Legal form transformation Hospitals
a b s t r a c t Background: This contribution is a response to the current issue of corporate governance in hospitals in the Czech Republic, which draw a significant portion of funds from public health insurance. This not only has a significant impact on the economic efficiency of hospitals, but ultimately affects the whole system of healthcare provision in the Czech Republic. Therefore, the effectiveness of the corporate governance of hospitals might affect the fiscal stability of the health system and, indirectly, health policy for the whole country. Objectives: The main objective of this paper is to evaluate the success of the transformation in connection with the performance of corporate governance in hospitals in the Czech Republic. Specifically, there was an examination of the management differences in various types of hospitals, which differed in their ownership structure and legal form. Methodology/Approach: A sample of 100 hospitals was investigated in 2009, i.e., immediately after the transformation had been completed, and then three years later in 2012. With regard to the different public support of individual hospitals, the operating subsidies were removed from the economic results of the corporations in the sample. The adjusted economic results were first of all examined in relationship to the type of hospital (according to owner and legal form), and then in relation to its size, the size of the supervisory board and the education level of the senior hospital manager. A multiple median regression was used for the evaluation. Findings: One of the basic findings was the fact that the hospital’s legal form had no influence on economic results. Successful management in the form of adjusted economic results is only associated with the private type of facility ownership. From the perspective of our concept of corporate governance other factors were under observation: the size of the hospital, the size of the supervisory board and the medical qualifications of the senior manager had no statistically verifiable influence on the efficiency of the hospital management, though we did record certain developments as a result of the transformation process. The economic results that were reported were significantly distorted by the operating subsidies from the founder. Practical Implications: The results can be used immediately on several practical levels: on the macro level as part of the state’s formulation of health policy, particularly in the optimization of the structure of healthcare providers, as well as for the completion of reforms in legal forms and hospital founders, and on the micro level as part of the effective administration and governance of hospitals through corporate governance regardless of the form of ownership. © 2015 Elsevier Ireland Ltd. All rights reserved.
∗ Corresponding author Tel.: +420 549 49 4783; fax: +420 549 49 4783. E-mail addresses: [email protected] (P. Pirozek), [email protected] (L. Komarkova), [email protected] (O. Leseticky), [email protected] (T. Hajdikova). http://dx.doi.org/10.1016/j.healthpol.2015.05.002 0168-8510/© 2015 Elsevier Ireland Ltd. All rights reserved.
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1. Introduction As demands for greater economic efficiency from healthcare providers have increased, the issue of the governance and administration of hospitals has grown in importance. In countries with a developed economic system it is possible to encounter a sophisticated theoretical background that reflects a distinct “blurring of the boundaries between the public and private sectors” [1]. At the same time there are also discussed here several aspects of hospital administration where they lead to a change in the health system in the sense of moving away from a centrally regulated system to decentralized profit and non-profit organizations [2]. In the countries of Central and East Europe, where health reforms were carried out in conjunction with changes to the political and economic system, attention is focused on efficient hospital governance and administration in an environment where hospitals currently operate under public as well as private ownership [3]. In this situation there is a proportional increase in the importance of the quality of human resources for the successful implementation of corporate governance, both in publicly and privately owned hospitals [4]. This is combined with demands for appropriate qualifications, skills, knowledge of the specific environment, as well as the prestige of people holding important positions in hospital management [5,6]. The current state of knowledge and practice is based on the general theory of corporate governance overlapping into the administration and management of hospitals [7]. The first studies dealing with this issue in the Czech Republic and Central Europe are mostly focused on comparing healthcare systems and hospital governance issues [8]. At present there is a lack of experience in the heterogeneous environment of a health system with a different ownership structure and legal form of hospital. However, at least there is a definition of the concept of hospital governance in the context of selected European countries [9]. The initial findings from the Czech Republic, which were based on a qualitative study of two selected hospitals, do not point to a clear relationship between a hospital’s legal form and its economic efficiency, while the factors influencing the efficiency of hospital governance are difficult to identify [10]. Moreover, it should be noted that several studies [11] have failed to show a link between economic efficiency and private ownership. There are also other views, combining greater autonomy at a hospital level with the flexibility to solve specific problems of management [12], or which demonstrate the advantages associated with higher motivation, income, flexibility and responsibility, and on the other hand, the disadvantages in the form of risk and the fragmentation of autonomy in hospitals [13]. However, to a large extent it was an argument based on previous findings, where specific experience with the transformation of the legal form of hospitals was lacking [14,15]. In connection with the transformation of the legal form of hospitals there have been several publications which have highlighted the potential pitfalls associated with a
combination of profit-oriented legal forms of public ownership [16]. The actual transformation process of the legal forms of hospitals (originally mainly contributory organizations established at the time of merging district offices) to commercial companies began after 2003 in the Czech Republic and reached its peak in the period 2005–2006. The main reason for transferring hospitals to joint-stock companies was an attempt by the new founders (the regions) to improve the economic efficiency of the service. In many cases hospitals came under “regional administration” with debts and losses (with negative economic results), and in some regions the hospitals’ accumulative losses reached into hundreds of millions of CZK (Czech Korunas). As a joint-stock company, the new owners (administrators) expected greater leeway for internal organizational changes, dealing with assets or the organization’s budget, and categorically rejected criticism that they were trying to conveniently privatize healthcare facilities (or so-called tunnelling) and repeatedly declared their intention to optimize the structure, accessibility and quality of healthcare for the public. On the other hand, local opponents of such a transformation process argued about the need to maintain the public character of health services with the continued dominant role of the state or the public sector amongst the providers. They often referred to the social significance of health, specifically health services, and to the inefficiency or even failure of the market system in the health service [17]. In discussions they downplayed the direct influence of the form of hospital ownership on its management and, on the other hand, emphasized the dangerous cases of economic difficulties leading to bankruptcy proceedings, receivership, sale of assets or their conversion to nonmedical subjects, all of which lead to a worsening in the quality and accessibility of medical services [18]. In connection with the growing influence of regional governments, there has already been mentioned the danger of the state’s health policy emerging from the weakening of the direct conceptual, managerial and supervisory role of the Ministry of Health. In the individual regions the actual transformation process was relatively autonomous and uncoordinated, while there was significant interference by political representatives (by the coalition of ruling political parties) on a local as well as national level. The transformation of hospitals then definitively stopped (it was de facto completed) after the regional elections in 2008. The aim of this paper is to evaluate the consequences of the transformation process of hospital legal forms operating in the Czech Republic in the period 2009 until 2012, and to discover the methods of implementing corporate governance in Czech hospitals. This will be achieved through an analysis and description of how corporate governance works in relation to the size of the hospital, the members of the supervisory board and the representation of doctors on the supervisory board in the various ownership structures of Czech hospitals. In view of the already published (though more general) research results [10], we will present the transformation process of the legal forms of various types of hospitals over a wider sample of hospitals
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with different ownership structures. This article intends to verify the assumption that there exists a difference in the management (e.g., with regard to support from public sources) within the defined sample of hospitals, and also the assertion that there exist significant factors within theoretical approaches which play an important role in efficient corporate governance. Unlike current research (and its associated findings) in the specific area of hospital governance [9] we use the classic concept of corporate governance taken from management and business theory [4] emphasizing mechanisms by which corporate managers are held accountable for corporate conduct and performance. Our concept of corporate governance reflects relations among owners, governing body, the executive management, regulators, auditors and other stakeholders groups and presents the issue from a business perspective specifically with regard to the use of the appropriate legal forms [19,20]. One reason why we employ the classic concept is that we included in our research sample all types of ownership structures and legal forms which the Czech legislative system defines for the area of business within the Czech Republic’s health system. Many governments throughout Europe have initiated hospital performance assessments, motivated by objectives such as quality management, improving accountability of hospital boards or informing the public. There are in principle five different types of measurement of hospital performance: regulatory inspection, surveys of consumers’ experiences, third-party assessments, internal assessments and statistical indicators. The statistical indicators represent an accessible means of performance measurement [21]. One of the major challenges facing health services management researchers is the measurement of various aspects of organizational performance, often based on the objective financial performance data, mostly derived from various reports (e.g., cash flow, asset turnover, mortality, complications, length of inpatient stay, cost per case, occupancy, etc.) which represent a potentially useful set for evaluating most hospitals and can also identify opportunities to make the organization more successful [22]. 2. Theory Conceptually, the Czech health system stems from the Bismarck model, which is characterized by funding which comes mainly from compulsory health insurance, where around 92% of health service funding comes from public sources. The total annual expenditure on health in the Czech Republic is estimated at 7.4% GDP (the equivalent of almost 10 billion Euros), and almost half of the expenditure goes to inpatient care, while just under a fifth goes on medicine and medical equipment. Within this system operate seven public health insurance companies, with the largest being the General Health Insurance Company (around 70% of those insured) [23]. In order to evaluate the health system the basic territorial units are 14 regions (note: regional authorities act as the founders for 60% of hospital organizations). In the Czech Republic both state and private providers of
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healthcare are relatively homogenous within the health system in the form of a more or less hierarchical structure of outpatient and inpatient healthcare: in 2012 there were recorded 20,244 independent outpatient surgeries (including 5331 general practitioners for adults) and 188 hospitals, 260 specialized therapeutic institutes and 89 spa treatment centres [23]. When measuring the quality of healthcare using the WHO methodology, which takes into account the basic health parameters (average age of the population and its growth, infant mortality, accessibility and price of healthcare, mortality from certain diseases, quality of life parameters, the number of selected, specialized procedures, etc.), the Czech Republic ranks 24th from approximately 200 countries that were monitored. In terms of performance measured across 27 OECD countries, the Czech health system is ranked “average to below average” [24]. Although at first glance it might seem that there was no shortage of reform attempts or conceptual proposals from 1990 to 2014, in reality all of the changes have been based largely on the concept of the health service as a public service to citizens. Historically there has prevailed an administrative-bureaucratic approach with preferred central management at the level of senior local-government units and the Czech Republic Ministry of Health, which mostly intervenes administratively in the structures or volume of supply and demand for health services, or to adapt the compensatory mechanisms to regulate the local healthcare system [25]. 2.1. Corporate governance, hospital governance The actual issue of hospital governance is quite broadly defined and has not seen much practical usage until now. The basic characteristics of the concept include “three different levels of hospital-related decision-making (macro, meso and micro levels of hospital governance). Each level has its own distinct characteristics, with its own separate group of decision makers” [9]. It is clear that this is a vast and complex issue covering both the political dimension due to the transformation examined, as well as the social and economic dimension [26]. By using an agency-theory approach to hospital governance, new insights into the case of hospitals owned by churches can be provided [27]. Thus far there has been a lack of research into the transformation of the legal form of hospitals and the related requirement for the effective and efficient work of the board, which may lead to a deeper understanding of hospital governance. It is a specific topic which merges the private and public spheres and which can inspire each other in efficient and effective performance management [28]. From the perspective of corporate governance, the situation of hospitals in the Czech Republic has not been particularly well researched. Some publications present the issue with a general description of new legal forms on the principle of profit organizations and their impact on healthcare in the Czech Republic [9,10] or comparative approaches are adopted to analyse hospital governance in an international context [8]. Far greater attention has
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been focused on the evaluation of the economic efficiency of health facilities deriving either from general approaches [29,30], from available validated economic indicators from annual reports, or by evaluating economic efficiency using the sophisticated Data Envelopment Analysis methods [31–33] and Stochastic Frontier Analysis [34] based on centrally available, though unverified, hospital statistical data (ÚZIS [Institute of Health Information and Statistics]). The basic approach to the general issue of corporate governance is based on resource-dependence approach theory and agency theory [35,36]. Looking at the evolution of governance in the transformed legal form of the hospital, it is possible to utilize both the resource-dependence theory [37–40], as well as the agency theory [41–43]. Due to this connection of public and private hospitals, research has emerged which is linked to the composition of the board and its associated efficiency, which has been investigated using selected parameters [44]. It has been stated that it is not always easy to transfer business practices to the performance evaluation of governing boards in the public sector [45]. In this case it is necessary to mention the views emerging from the research of public administrations whereby managers must be regulated and monitored by appropriate management mechanisms [28]. Building an effective board is connected with a work environment based on trust and openness, with the acceptance of an open culture of opposition, the variability of board members’ decisions preventing rigidity, and ultimately ensuring the accountability and evaluation of performance [46]. The selection of board members is influenced by the ownership structure and orientation of the hospital. Some specific features are presented for profit organizations [45] and there are researchers who explore the effectiveness and efficiency of the board in the public sector [44], or in non-profit organizations [47]. Due to the predominance of public ownership of hospitals in transition economies, including our cases, politicians are often nominated to the boards, which raises the question of their actual contribution to hospital governance. In this context, there has been research into the supervisory board structure involving politicians and linking the performance with some aspects of a highly regulated economic environment [48], specifically for the healthcare system in the Czech Republic. The skills of the supervisory board are another important aspect of the performance of hospital governance. Some of the most important criteria for evaluating the CEOs and the board include the following competences: the financial performance of hospitals ensuring a balanced budget, relationships with physicians, strategies linked to the vision of the hospital and ultimately the quality of healthcare [8]. An important factor in evaluation skills is not just the members of the board themselves, but also the information and decision-making system associated with the performance of hospital governance [49]. Equally important are the group dynamics associated with the effects of social forces. These were established by a study demonstrating the importance of board teamwork on the efficiency performance of hospital governance, which indirectly and
positively influences positive financial results [50]. A very serious issue that is associated with corporate governance is the principle of duality, where the director is also a member of the board with implications for control and independent decision-making that may lead to fraud [51]. In this context it has been shown that it is necessary to look at the duality from the perspective of succession [28]. Diversity is also essential for the overall performance of the board in achieving efficient and effective hospital governance. As follows from existing research, the availability of external information has a positive influence on team performance [52]. This results in greater diversity of opinion which promotes the discussion of views [53]. A specific element of hospital governance is the representation of physicians on the health board or the position of hospital director. Views on their role have been presented in many studies [26,54]. However, there are clear references to the involvement of physicians on the board [55]. They define recommendations for the optimal size of the board in terms of financial performance [56]. Specific quantification differs in the territorial and cultural environment in which proponents of opinion pluralism see the advantages of using a larger board of stakeholders [57] or specific recommendations which indicate the recommended optimum number of board members at intervals ranging from 6 to 10 members [7,58]. The transformation of hospitals is a dynamic process, where we can expect similar trends to other countries in the development of hospital governance [4]. The improvement of the work of the board, associated with an increase in the effectiveness and efficiency of hospital governance, can be drawn from experiences documented from abroad. 3. Data and methods 3.1. Data The analysed data was collected from public sources (hospital websites, ÚZIS [Institute of Health Information and Statistics] and the administrative business register). The data was acquired from annual reports which corporations provide to the aforementioned public source. All commercial corporations have an obligation to provide statements and annual reports to the commercial register. Self-governing commercial corporations and joint-stock hospitals fulfil this obligation, though hospitals in the form of limited-liability companies do not. In the Czech Republic annual reports do not have a prescribed format and the management decides what the content should be. The majority of annual reports contain final audit reports and financial statements, data concerning hospital departments, the number of employees, employees’ qualifications, data on the structure of revenues and expenses, the names of those on the management and supervisory boards, etc. The size of these annual reports ranges from 2 to 150 pages, and in some cases the same hospital changes the format over different years. They are also published in a PDF format which prevents automated processing. In the years under examination – 2009 and 2012 – hospital care accounted for 45.3% and 46.7% of total health insurance expenditure. Detailed information about the
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Table 1 Number of hospitals according to their owner and legal form in years 2009 and 2012. Owner
Legal form
State government Region, town or municipality government
State budgetary organizations Budgetary organizations or Benevolent corporations Joint stock companies or limited liability companies Joint stock companies or limited liability companies Non-profit organizations
Region, town or municipality government Private Church Total
type of hospitals in the Czech Republic with respect to ownership and legal form is given in Table 1. In the year 2009, there were 191 hospital establishments operating in the Czech Republic: 19 hospitals (teaching hospitals and highly specialized centres) were administered by the Ministry of Health, five hospitals were set up by other government departments (mainly by the DoD), 24 hospitals were administered by regional authorities, 18 hospitals were founded by the municipalities, 122 hospitals had the status of profit legal forms of companies (52 of them owned by the regional or municipal authority) and three hospitals were founded by churches [59]. In 2012, three fewer hospitals were registered in comparison with 2009, i.e., 188. In particular, there was a change in the number of non-state and non-church hospitals. In 2012, 23 hospitals were managed by the regions, 17 by cities or municipalities, 121 hospitals were in the form of commercial companies, and in 50 of them the region, city or municipality had a majority share [23]. For individual hospitals, alongside the majority owner and legal form, for the years 2009–2012 there was also ascertained the economic results, the level of operating subsidy, the size of the hospital measured by the number of beds, the number of members of the supervisory board and the level of education of the senior manager or main representative of the statutory body. Despite the aforementioned restriction in data collection, for the two years under examination data was obtained from 100 identical hospitals. Table 1 Number of hospitals according to their owner and legal form in 2009–2012. The sample of 100 hospitals is made up of 14 state-contribution hospitals, of which 12 are managed by the Ministry of Health and two by central authorities. Of 20 contributory organizations, 15 are managed by the region, one by the city and four by the municipalities. There are 43 commercial companies included in the sample, where the main owners are selfgoverning bodies, 34 of which are joint-stock companies (for 31 of them the majority owner is the region and the city for three) and nine limited-liability companies (one where the owner is the region, eight where the owner is the city). 21 commercial companies (12 joint-stock, 9 limited) have a private owner, and in four cases of them this is an individual person. 3.2. Methodology Before the transformation most hospitals had the legal form of contributory organizations with limited scope to
Total Nr.2009
Total Nr.2012
Sample
24 42
24 40
14 22
52
50
43
70
71
21
3 191
3 188
0 100
influence performance, particularly in the area of fixed costs. The pre-transformation form of budgetary or contributory organizations did not have supervisory boards and the hospitals were managed centrally through an appointed director who adhered to the guidelines set out by civil servants. Therefore, the supervisory board is new and is connected to the transformation of legal forms. The bodies associated with corporate governance in the Czech Republic combine the one-tier and two-tier approaches. In terms of legal form, a hospital can have the statute of a commercial company (which includes a joint-stock company or a limited liability company), which utilizes the two-tier (or German) model, where the executive is made up of the board of directors including directors, and the supervisory board represents the administrative authority, while the obligation to appoint a supervisory boards exists within a joint-stock company. For limited liability companies the legal obligation to establish a supervisory board does not apply, though it is permitted by law. An alternative legal form is the public-funded organization with the statute of a non-profit organization and with a direct link to state or public budgets. The final legal form – non-state, non-profit organizations – are financed by contributions, donations and other economic activities which do not directly involve making a profit. Public organizations (and corresponding legal forms) correspond to the single-tier model, consisting of the hospital director and his managers, as well as a possible board of directors. Sometimes a supervisory board is appointed for contributory organizations, particularly at city hospitals and selected regions. In connection with the corporate governance of a hospital, it is interesting to observe the qualification structure of the executive. Unlike in the past when someone within the statutory board had to have a medical education, qualifications from non-medical disciplines are now in evidence. As the commercial and non-commercial legal forms of hospital are only represented by self-governing bodies as the owner, for the purposes of our analysis we will differentiate the following four types of hospital: • Type 1—A contributory organization owned by the state, the director represents the executive. • Type 2—Contributory organization, a public benefit corporation organized by self-governing bodies, the director represents the executive. • Type 3—Commercial company, where self-governing bodies have a majority share; the executive is represented by the executive board.
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• Type 4—Commercial company with majority private ownership; the executive is the (a) executive manager (b) the executive board. Therefore, the first two types of hospital are non-profit organizations, whilst the second are profit-oriented. Since financial indicators as ROA (return of assets), operating earnings or operating margin are being considered as the most valid subjective financial measures of hospital performance [60], the efficiency of a hospital’s corporate governance is primarily assessed through the economic results minus the operational subsidies for 2009 and 2012. Secondly, the efficiency of the hospitals was investigated in relationship to the type and size of hospital (number of beds), the size of the supervisory board and the medical qualification of the senior manager. A multiple median regression was used and the statistical significance was evaluated at ˛ = 5%. 4. Results The sample of 100 hospitals consisted of 14 Type 1 hospitals, 22 Type 2 hospitals, 43 Type 3 hospitals and 21 Type 4 hospitals. State hospitals (Type 1) are larger than the others, whilst private hospitals (Type 4) tend to have a smaller number of beds (see Table 2). The number of beds fell in 39 hospitals and rose in 20. In private hospitals the supervisory boards had between 0 and 6 members. They did not operate in state hospitals (Type 1). In 2009, Type 2 hospital supervisory boards had a maximum of five members, in 2012, six members. In both of these years the majority of these hospitals had a supervisory board with 0. For Type 3 hospitals, in 2009 the supervisory boards had between three and nine members, by 2012 the supervisory boards had increased to 12 members. Approximately half of the hospitals (52%, 50%) have a senior manager with a medical qualification. In 2009 only three doctors had an MBA title, in 2012 there were 13. Table 2 Hospital size and size of supervisory board according to the type of hospitals in years 2009 and 2012 – Summary statistics (Mean, Median, Lower Quartile, Upper Quartile, Minimum, Maximum); Number of hospitals with medical doctor as an executive senior manager – Absolute (relative) frequencies. Of the 100 hospitals included in the study, in 2009 77 finished the year in profit. In 2012 there were four fewer. The results (Table 3) show that the operational subsidies heavily distort the economic results, particularly for state hospitals. With the subsidies removed, the private hospitals had the best economic results in 2009. A similar situation can also be observed in 2012. However, in this year the economic results for state and private hospitals were worse than in 2009. It is worth noting that for self-governing hospitals, once the subsidies have been removed it was the non-commercial company hospitals which fared best. Table 3 Economic results with and without operating subsidies (OS) according to the type of hospitals in years 2009 and 2012 – Summary statistics (Mean, Median, Lower Quartile, Upper Quartile); Number of profitable hospitals (with and without operating subsidies) – Absolute
(relative) frequencies. For further analysis the economic results were used without the operating subsidy (abbreviation AER). The dependence of the AER on other factors (type and size of the hospital, size of supervisory board, executive manager) was examined using the multiple median (L1) regression. Median regression rather than the more classical mean (ordinary least squares) regression was used due to the distribution of the economic results exhibiting outlying values. That is, our results show the influence of the factors under consideration on the median of the AER rather than on its mean. Table 4 Results of the multiple median regression analysis for both 2009 and 2012—Estimates of partial regression parameters and corresponding p-values; Bonferroni Multiple comparison—estimates of differences of medians, adjusted p-values. In 2009, on the basis of multiple median regression, no statistical significant effect was seen. On the other hand, in 2012, partial dependency of AER on the type of hospital was proved. A multiple comparison, where the p-values were adjusted using the Bonferroni method, was performed to compare AER of hospitals of different type. In 2012, statistically significant difference was demonstrated between state hospitals (Type 1) and others (Type 2, 3, 4) and between commercial companies run by self-governing bodies (Type 3) and private owners (Type 4). State hospitals fared the worst while private ones fared best. If we were to compare the order of the hospital types from both years on the basis of estimates from multiple comparisons, the result would be the same: (1) private hospitals (Type 4), (2) non-commercial self-governing hospitals (Type 2), (3) commercial self-governing hospitals (Type 3) (4) state hospitals (Type 1). The results show that the relative differences between the individual types of hospitals has widened between 2009 and 2012. 5. Discussion This paper evaluated the results of the transformation of the legal form of hospitals in the Czech Republic and their associated economic success. This research showed the influence of operating subsidies on the economic performance of all types of hospitals. Thus, the objective was to determine the true efficiency of hospitals when the operating subsidy was removed from the economic results. Only in 2012 do the results demonstrate the statistically significant effect of the type of hospital on the adjusted economic results. In 2009 no relationship was found between economic results and any of the observed variables connected to the corporate governance of hospitals. In 2009 a large difference was recorded in economic performance, particularly in contributory hospitals owned by the state (Type1), including university hospitals, which without subsidies recorded significant losses. On the other hand, hospitals with the legal form of a commercial company with a majority private owner (Type 4) had positive economic results, with or without subsidies. As for achieving success in economic performance, in 2012 the individual types of hospitals again experienced worsening economic results. For all types of legal forms, for either state-owned or self-governing public hospitals
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Table 2 Hospital size and size of supervisory board according to the type of hospitals in years 2009 and 2012 – summary statistics (Mean, Median, Lower Quartile, Upper Quartile, Minimum, Maximum); Number of hospitals with medical doctor as an executive senior manager – absolute (relative) frequencies. Medical doctor as CEO (Number of hospitals)
Year 2009
Hospital size (Number of beds)
Supervisory board (Number of members)
Type
Mean
Med
LQ
UQ
Med
Min
Max
Abs. (Rel.) Freq
1 2 3 4 Total
1043 396 467 202 477
1080 364 316 162 314
323 196 166 142 161
1576 556 529 259 542
0 0 6 3 3
0 0 3 0 0
0 5 9 6 9
9 (64.3%) 11 (50.0%) 20 (46.5%) 12 (57.1%) 52 (52.0%)
Year 2012
Hospital size (Number of beds)
Type
Mean
Med
LQ
UQ
Med
Min
Max
Abs. (Rel.) Freq
1 2 3 4 Total
985 395 459 205 465
1000 400 316 158 315
323 167 174 120 162
1509 548 502 271 542
0 0 7 3 3
0 0 3 0 0
0 5 12 6 12
9 (64.3%) 9 (40.9%) 17 (39.5%) 15 (71.4%) 50 (50.0%)
Medical doctor as CEO (Number of hospitals)
Supervisory board (Number of members)
Table 3 Economic results with and without operating subsidies (OS) according to the type of hospitals in years 2009 and 2012 – summary statistics (Mean, Median, Lower Quartile, Upper Quartile); Number of profitable hospitals (with and without operating subsidies) – absolute (relative) frequencies. 2009
Economic result in mil. CZK
Type
Mean
Med
LQ
UQ
1 2 3 4 Total
25.3 −1.7 −4.1 15.8 4.7
10.8 0.1 0.3 8.9 1.8
4.8 0.0 −12.5 1.7 0.0
28.9 5.2 2.7 20.4 11.2
2012
Economic result in mil. CZK
Type
Mean
1 2 3 4 Total
5.8 0.1 −6.0 13.6 1.1
Med
LQ
1.1 0.3 0.0 3.6 0.4
0.5 0.1 −6.7 0.4 −0.1
Adjusted economic result w/o OS in mil. CZK
Profitable
Profitable w/o OS
Mean
Freq.
Freq.
14 (100.0%) 17 (77.3%) 26 (60.5%) 20 (95.2%) 77 (77.0%)
5 (35.7%) 7 (31.8%) 14 (32.6%) 18 (85.7%) 44 (44.0%)
Adjusted economic result w/o OS in mil. CZK
Profitable
Profitable w/o OS
UQ
Mean
Med
LQ
UQ
Freq.
Freq.
2.4 0.7 1.3 17.9 2.9
−100.7 −8.7 −34.1 1.4 −30.4
−98.5 −6.9 −14.4 1.0 −10.8
−107.3 −19.2 −37.0 −1.1 −29.4
−42.8 −0.5 −6.0 5.7 −0.4
14 (100.0%) 18 (81.8%) 23 (53.5%) 18 (85.7%) 73 (73.0%)
0 (0.0%) 3 (13.6%) 5 (11.6%) 12 (57.1%) 20 (20.0%)
−48.6 −10.0 −18.6 11.5 −14.6
Med −5.6 −2.7 −7.2 5.3 −1.6
LQ
UQ
−104.3 −13.2 −23.4 0.1 −16.3
8.2 2.9 0.3 15.8 5.3
Table 4 Results of multiple median regression analysis for the both years 2009 and 2012 – estimates of partial regression parameters and its corresponding p-values; Bonferroni Multiple comparison – estimates of differences of medians, adjusted p-values. Regression analysis
2009
Variable
Estimate
Type of hospital Hospital size Supervisory Board Medical doctor
See effect of type below −0.022 0.014 −0.345 0.748 −3.247 3.265
Effect of type
2009
Multiple comparison (Bonferroni method)
Estimate
Type 2 vs. Type 1 Type 3 vs. Type 1 Type 4 vs. Type 1 Type 3 vs. Type 2 Type 4 vs. Type 2 Type 4 vs. Type 3
3.55 0.69 9.71 −2.86 6.16 9.02
2012 Std. Error
P-value
Estimate
0.175 0.133 0.646 0.323
See effect of type below −0.003 0.010 0.399 0.744 −4.786 3.977
Std. Error
P-value
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Contents lists available at ScienceDirect
Health Policy journal homepage: www.elsevier.com/locate/healthpol
Corporate governance in Czech hospitals after the transformation Petr Pirozek a,∗ , Lenka Komarkova b , Ondrej Leseticky b , Tatana Hajdikova b a b
Masaryk University, Faculty of Economics and Administration, Lipova 41a, Brno, Czech Republic University of Economics Prague, Faculty of Management, Jarosovska 1117, Jindrichuv Hradec, Czech Republic
a r t i c l e
i n f o
Article history: Received 12 September 2014 Received in revised form 13 April 2015 Accepted 3 May 2015 Keywords: Management Corporate governance Legal form transformation Hospitals
a b s t r a c t Background: This contribution is a response to the current issue of corporate governance in hospitals in the Czech Republic, which draw a significant portion of funds from public health insurance. This not only has a significant impact on the economic efficiency of hospitals, but ultimately affects the whole system of healthcare provision in the Czech Republic. Therefore, the effectiveness of the corporate governance of hospitals might affect the fiscal stability of the health system and, indirectly, health policy for the whole country. Objectives: The main objective of this paper is to evaluate the success of the transformation in connection with the performance of corporate governance in hospitals in the Czech Republic. Specifically, there was an examination of the management differences in various types of hospitals, which differed in their ownership structure and legal form. Methodology/Approach: A sample of 100 hospitals was investigated in 2009, i.e., immediately after the transformation had been completed, and then three years later in 2012. With regard to the different public support of individual hospitals, the operating subsidies were removed from the economic results of the corporations in the sample. The adjusted economic results were first of all examined in relationship to the type of hospital (according to owner and legal form), and then in relation to its size, the size of the supervisory board and the education level of the senior hospital manager. A multiple median regression was used for the evaluation. Findings: One of the basic findings was the fact that the hospital’s legal form had no influence on economic results. Successful management in the form of adjusted economic results is only associated with the private type of facility ownership. From the perspective of our concept of corporate governance other factors were under observation: the size of the hospital, the size of the supervisory board and the medical qualifications of the senior manager had no statistically verifiable influence on the efficiency of the hospital management, though we did record certain developments as a result of the transformation process. The economic results that were reported were significantly distorted by the operating subsidies from the founder. Practical Implications: The results can be used immediately on several practical levels: on the macro level as part of the state’s formulation of health policy, particularly in the optimization of the structure of healthcare providers, as well as for the completion of reforms in legal forms and hospital founders, and on the micro level as part of the effective administration and governance of hospitals through corporate governance regardless of the form of ownership. © 2015 Elsevier Ireland Ltd. All rights reserved.
∗ Corresponding author Tel.: +420 549 49 4783; fax: +420 549 49 4783. E-mail addresses: [email protected] (P. Pirozek), [email protected] (L. Komarkova), [email protected] (O. Leseticky), [email protected] (T. Hajdikova). http://dx.doi.org/10.1016/j.healthpol.2015.05.002 0168-8510/© 2015 Elsevier Ireland Ltd. All rights reserved.
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1. Introduction As demands for greater economic efficiency from healthcare providers have increased, the issue of the governance and administration of hospitals has grown in importance. In countries with a developed economic system it is possible to encounter a sophisticated theoretical background that reflects a distinct “blurring of the boundaries between the public and private sectors” [1]. At the same time there are also discussed here several aspects of hospital administration where they lead to a change in the health system in the sense of moving away from a centrally regulated system to decentralized profit and non-profit organizations [2]. In the countries of Central and East Europe, where health reforms were carried out in conjunction with changes to the political and economic system, attention is focused on efficient hospital governance and administration in an environment where hospitals currently operate under public as well as private ownership [3]. In this situation there is a proportional increase in the importance of the quality of human resources for the successful implementation of corporate governance, both in publicly and privately owned hospitals [4]. This is combined with demands for appropriate qualifications, skills, knowledge of the specific environment, as well as the prestige of people holding important positions in hospital management [5,6]. The current state of knowledge and practice is based on the general theory of corporate governance overlapping into the administration and management of hospitals [7]. The first studies dealing with this issue in the Czech Republic and Central Europe are mostly focused on comparing healthcare systems and hospital governance issues [8]. At present there is a lack of experience in the heterogeneous environment of a health system with a different ownership structure and legal form of hospital. However, at least there is a definition of the concept of hospital governance in the context of selected European countries [9]. The initial findings from the Czech Republic, which were based on a qualitative study of two selected hospitals, do not point to a clear relationship between a hospital’s legal form and its economic efficiency, while the factors influencing the efficiency of hospital governance are difficult to identify [10]. Moreover, it should be noted that several studies [11] have failed to show a link between economic efficiency and private ownership. There are also other views, combining greater autonomy at a hospital level with the flexibility to solve specific problems of management [12], or which demonstrate the advantages associated with higher motivation, income, flexibility and responsibility, and on the other hand, the disadvantages in the form of risk and the fragmentation of autonomy in hospitals [13]. However, to a large extent it was an argument based on previous findings, where specific experience with the transformation of the legal form of hospitals was lacking [14,15]. In connection with the transformation of the legal form of hospitals there have been several publications which have highlighted the potential pitfalls associated with a
combination of profit-oriented legal forms of public ownership [16]. The actual transformation process of the legal forms of hospitals (originally mainly contributory organizations established at the time of merging district offices) to commercial companies began after 2003 in the Czech Republic and reached its peak in the period 2005–2006. The main reason for transferring hospitals to joint-stock companies was an attempt by the new founders (the regions) to improve the economic efficiency of the service. In many cases hospitals came under “regional administration” with debts and losses (with negative economic results), and in some regions the hospitals’ accumulative losses reached into hundreds of millions of CZK (Czech Korunas). As a joint-stock company, the new owners (administrators) expected greater leeway for internal organizational changes, dealing with assets or the organization’s budget, and categorically rejected criticism that they were trying to conveniently privatize healthcare facilities (or so-called tunnelling) and repeatedly declared their intention to optimize the structure, accessibility and quality of healthcare for the public. On the other hand, local opponents of such a transformation process argued about the need to maintain the public character of health services with the continued dominant role of the state or the public sector amongst the providers. They often referred to the social significance of health, specifically health services, and to the inefficiency or even failure of the market system in the health service [17]. In discussions they downplayed the direct influence of the form of hospital ownership on its management and, on the other hand, emphasized the dangerous cases of economic difficulties leading to bankruptcy proceedings, receivership, sale of assets or their conversion to nonmedical subjects, all of which lead to a worsening in the quality and accessibility of medical services [18]. In connection with the growing influence of regional governments, there has already been mentioned the danger of the state’s health policy emerging from the weakening of the direct conceptual, managerial and supervisory role of the Ministry of Health. In the individual regions the actual transformation process was relatively autonomous and uncoordinated, while there was significant interference by political representatives (by the coalition of ruling political parties) on a local as well as national level. The transformation of hospitals then definitively stopped (it was de facto completed) after the regional elections in 2008. The aim of this paper is to evaluate the consequences of the transformation process of hospital legal forms operating in the Czech Republic in the period 2009 until 2012, and to discover the methods of implementing corporate governance in Czech hospitals. This will be achieved through an analysis and description of how corporate governance works in relation to the size of the hospital, the members of the supervisory board and the representation of doctors on the supervisory board in the various ownership structures of Czech hospitals. In view of the already published (though more general) research results [10], we will present the transformation process of the legal forms of various types of hospitals over a wider sample of hospitals
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with different ownership structures. This article intends to verify the assumption that there exists a difference in the management (e.g., with regard to support from public sources) within the defined sample of hospitals, and also the assertion that there exist significant factors within theoretical approaches which play an important role in efficient corporate governance. Unlike current research (and its associated findings) in the specific area of hospital governance [9] we use the classic concept of corporate governance taken from management and business theory [4] emphasizing mechanisms by which corporate managers are held accountable for corporate conduct and performance. Our concept of corporate governance reflects relations among owners, governing body, the executive management, regulators, auditors and other stakeholders groups and presents the issue from a business perspective specifically with regard to the use of the appropriate legal forms [19,20]. One reason why we employ the classic concept is that we included in our research sample all types of ownership structures and legal forms which the Czech legislative system defines for the area of business within the Czech Republic’s health system. Many governments throughout Europe have initiated hospital performance assessments, motivated by objectives such as quality management, improving accountability of hospital boards or informing the public. There are in principle five different types of measurement of hospital performance: regulatory inspection, surveys of consumers’ experiences, third-party assessments, internal assessments and statistical indicators. The statistical indicators represent an accessible means of performance measurement [21]. One of the major challenges facing health services management researchers is the measurement of various aspects of organizational performance, often based on the objective financial performance data, mostly derived from various reports (e.g., cash flow, asset turnover, mortality, complications, length of inpatient stay, cost per case, occupancy, etc.) which represent a potentially useful set for evaluating most hospitals and can also identify opportunities to make the organization more successful [22]. 2. Theory Conceptually, the Czech health system stems from the Bismarck model, which is characterized by funding which comes mainly from compulsory health insurance, where around 92% of health service funding comes from public sources. The total annual expenditure on health in the Czech Republic is estimated at 7.4% GDP (the equivalent of almost 10 billion Euros), and almost half of the expenditure goes to inpatient care, while just under a fifth goes on medicine and medical equipment. Within this system operate seven public health insurance companies, with the largest being the General Health Insurance Company (around 70% of those insured) [23]. In order to evaluate the health system the basic territorial units are 14 regions (note: regional authorities act as the founders for 60% of hospital organizations). In the Czech Republic both state and private providers of
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healthcare are relatively homogenous within the health system in the form of a more or less hierarchical structure of outpatient and inpatient healthcare: in 2012 there were recorded 20,244 independent outpatient surgeries (including 5331 general practitioners for adults) and 188 hospitals, 260 specialized therapeutic institutes and 89 spa treatment centres [23]. When measuring the quality of healthcare using the WHO methodology, which takes into account the basic health parameters (average age of the population and its growth, infant mortality, accessibility and price of healthcare, mortality from certain diseases, quality of life parameters, the number of selected, specialized procedures, etc.), the Czech Republic ranks 24th from approximately 200 countries that were monitored. In terms of performance measured across 27 OECD countries, the Czech health system is ranked “average to below average” [24]. Although at first glance it might seem that there was no shortage of reform attempts or conceptual proposals from 1990 to 2014, in reality all of the changes have been based largely on the concept of the health service as a public service to citizens. Historically there has prevailed an administrative-bureaucratic approach with preferred central management at the level of senior local-government units and the Czech Republic Ministry of Health, which mostly intervenes administratively in the structures or volume of supply and demand for health services, or to adapt the compensatory mechanisms to regulate the local healthcare system [25]. 2.1. Corporate governance, hospital governance The actual issue of hospital governance is quite broadly defined and has not seen much practical usage until now. The basic characteristics of the concept include “three different levels of hospital-related decision-making (macro, meso and micro levels of hospital governance). Each level has its own distinct characteristics, with its own separate group of decision makers” [9]. It is clear that this is a vast and complex issue covering both the political dimension due to the transformation examined, as well as the social and economic dimension [26]. By using an agency-theory approach to hospital governance, new insights into the case of hospitals owned by churches can be provided [27]. Thus far there has been a lack of research into the transformation of the legal form of hospitals and the related requirement for the effective and efficient work of the board, which may lead to a deeper understanding of hospital governance. It is a specific topic which merges the private and public spheres and which can inspire each other in efficient and effective performance management [28]. From the perspective of corporate governance, the situation of hospitals in the Czech Republic has not been particularly well researched. Some publications present the issue with a general description of new legal forms on the principle of profit organizations and their impact on healthcare in the Czech Republic [9,10] or comparative approaches are adopted to analyse hospital governance in an international context [8]. Far greater attention has
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been focused on the evaluation of the economic efficiency of health facilities deriving either from general approaches [29,30], from available validated economic indicators from annual reports, or by evaluating economic efficiency using the sophisticated Data Envelopment Analysis methods [31–33] and Stochastic Frontier Analysis [34] based on centrally available, though unverified, hospital statistical data (ÚZIS [Institute of Health Information and Statistics]). The basic approach to the general issue of corporate governance is based on resource-dependence approach theory and agency theory [35,36]. Looking at the evolution of governance in the transformed legal form of the hospital, it is possible to utilize both the resource-dependence theory [37–40], as well as the agency theory [41–43]. Due to this connection of public and private hospitals, research has emerged which is linked to the composition of the board and its associated efficiency, which has been investigated using selected parameters [44]. It has been stated that it is not always easy to transfer business practices to the performance evaluation of governing boards in the public sector [45]. In this case it is necessary to mention the views emerging from the research of public administrations whereby managers must be regulated and monitored by appropriate management mechanisms [28]. Building an effective board is connected with a work environment based on trust and openness, with the acceptance of an open culture of opposition, the variability of board members’ decisions preventing rigidity, and ultimately ensuring the accountability and evaluation of performance [46]. The selection of board members is influenced by the ownership structure and orientation of the hospital. Some specific features are presented for profit organizations [45] and there are researchers who explore the effectiveness and efficiency of the board in the public sector [44], or in non-profit organizations [47]. Due to the predominance of public ownership of hospitals in transition economies, including our cases, politicians are often nominated to the boards, which raises the question of their actual contribution to hospital governance. In this context, there has been research into the supervisory board structure involving politicians and linking the performance with some aspects of a highly regulated economic environment [48], specifically for the healthcare system in the Czech Republic. The skills of the supervisory board are another important aspect of the performance of hospital governance. Some of the most important criteria for evaluating the CEOs and the board include the following competences: the financial performance of hospitals ensuring a balanced budget, relationships with physicians, strategies linked to the vision of the hospital and ultimately the quality of healthcare [8]. An important factor in evaluation skills is not just the members of the board themselves, but also the information and decision-making system associated with the performance of hospital governance [49]. Equally important are the group dynamics associated with the effects of social forces. These were established by a study demonstrating the importance of board teamwork on the efficiency performance of hospital governance, which indirectly and
positively influences positive financial results [50]. A very serious issue that is associated with corporate governance is the principle of duality, where the director is also a member of the board with implications for control and independent decision-making that may lead to fraud [51]. In this context it has been shown that it is necessary to look at the duality from the perspective of succession [28]. Diversity is also essential for the overall performance of the board in achieving efficient and effective hospital governance. As follows from existing research, the availability of external information has a positive influence on team performance [52]. This results in greater diversity of opinion which promotes the discussion of views [53]. A specific element of hospital governance is the representation of physicians on the health board or the position of hospital director. Views on their role have been presented in many studies [26,54]. However, there are clear references to the involvement of physicians on the board [55]. They define recommendations for the optimal size of the board in terms of financial performance [56]. Specific quantification differs in the territorial and cultural environment in which proponents of opinion pluralism see the advantages of using a larger board of stakeholders [57] or specific recommendations which indicate the recommended optimum number of board members at intervals ranging from 6 to 10 members [7,58]. The transformation of hospitals is a dynamic process, where we can expect similar trends to other countries in the development of hospital governance [4]. The improvement of the work of the board, associated with an increase in the effectiveness and efficiency of hospital governance, can be drawn from experiences documented from abroad. 3. Data and methods 3.1. Data The analysed data was collected from public sources (hospital websites, ÚZIS [Institute of Health Information and Statistics] and the administrative business register). The data was acquired from annual reports which corporations provide to the aforementioned public source. All commercial corporations have an obligation to provide statements and annual reports to the commercial register. Self-governing commercial corporations and joint-stock hospitals fulfil this obligation, though hospitals in the form of limited-liability companies do not. In the Czech Republic annual reports do not have a prescribed format and the management decides what the content should be. The majority of annual reports contain final audit reports and financial statements, data concerning hospital departments, the number of employees, employees’ qualifications, data on the structure of revenues and expenses, the names of those on the management and supervisory boards, etc. The size of these annual reports ranges from 2 to 150 pages, and in some cases the same hospital changes the format over different years. They are also published in a PDF format which prevents automated processing. In the years under examination – 2009 and 2012 – hospital care accounted for 45.3% and 46.7% of total health insurance expenditure. Detailed information about the
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Table 1 Number of hospitals according to their owner and legal form in years 2009 and 2012. Owner
Legal form
State government Region, town or municipality government
State budgetary organizations Budgetary organizations or Benevolent corporations Joint stock companies or limited liability companies Joint stock companies or limited liability companies Non-profit organizations
Region, town or municipality government Private Church Total
type of hospitals in the Czech Republic with respect to ownership and legal form is given in Table 1. In the year 2009, there were 191 hospital establishments operating in the Czech Republic: 19 hospitals (teaching hospitals and highly specialized centres) were administered by the Ministry of Health, five hospitals were set up by other government departments (mainly by the DoD), 24 hospitals were administered by regional authorities, 18 hospitals were founded by the municipalities, 122 hospitals had the status of profit legal forms of companies (52 of them owned by the regional or municipal authority) and three hospitals were founded by churches [59]. In 2012, three fewer hospitals were registered in comparison with 2009, i.e., 188. In particular, there was a change in the number of non-state and non-church hospitals. In 2012, 23 hospitals were managed by the regions, 17 by cities or municipalities, 121 hospitals were in the form of commercial companies, and in 50 of them the region, city or municipality had a majority share [23]. For individual hospitals, alongside the majority owner and legal form, for the years 2009–2012 there was also ascertained the economic results, the level of operating subsidy, the size of the hospital measured by the number of beds, the number of members of the supervisory board and the level of education of the senior manager or main representative of the statutory body. Despite the aforementioned restriction in data collection, for the two years under examination data was obtained from 100 identical hospitals. Table 1 Number of hospitals according to their owner and legal form in 2009–2012. The sample of 100 hospitals is made up of 14 state-contribution hospitals, of which 12 are managed by the Ministry of Health and two by central authorities. Of 20 contributory organizations, 15 are managed by the region, one by the city and four by the municipalities. There are 43 commercial companies included in the sample, where the main owners are selfgoverning bodies, 34 of which are joint-stock companies (for 31 of them the majority owner is the region and the city for three) and nine limited-liability companies (one where the owner is the region, eight where the owner is the city). 21 commercial companies (12 joint-stock, 9 limited) have a private owner, and in four cases of them this is an individual person. 3.2. Methodology Before the transformation most hospitals had the legal form of contributory organizations with limited scope to
Total Nr.2009
Total Nr.2012
Sample
24 42
24 40
14 22
52
50
43
70
71
21
3 191
3 188
0 100
influence performance, particularly in the area of fixed costs. The pre-transformation form of budgetary or contributory organizations did not have supervisory boards and the hospitals were managed centrally through an appointed director who adhered to the guidelines set out by civil servants. Therefore, the supervisory board is new and is connected to the transformation of legal forms. The bodies associated with corporate governance in the Czech Republic combine the one-tier and two-tier approaches. In terms of legal form, a hospital can have the statute of a commercial company (which includes a joint-stock company or a limited liability company), which utilizes the two-tier (or German) model, where the executive is made up of the board of directors including directors, and the supervisory board represents the administrative authority, while the obligation to appoint a supervisory boards exists within a joint-stock company. For limited liability companies the legal obligation to establish a supervisory board does not apply, though it is permitted by law. An alternative legal form is the public-funded organization with the statute of a non-profit organization and with a direct link to state or public budgets. The final legal form – non-state, non-profit organizations – are financed by contributions, donations and other economic activities which do not directly involve making a profit. Public organizations (and corresponding legal forms) correspond to the single-tier model, consisting of the hospital director and his managers, as well as a possible board of directors. Sometimes a supervisory board is appointed for contributory organizations, particularly at city hospitals and selected regions. In connection with the corporate governance of a hospital, it is interesting to observe the qualification structure of the executive. Unlike in the past when someone within the statutory board had to have a medical education, qualifications from non-medical disciplines are now in evidence. As the commercial and non-commercial legal forms of hospital are only represented by self-governing bodies as the owner, for the purposes of our analysis we will differentiate the following four types of hospital: • Type 1—A contributory organization owned by the state, the director represents the executive. • Type 2—Contributory organization, a public benefit corporation organized by self-governing bodies, the director represents the executive. • Type 3—Commercial company, where self-governing bodies have a majority share; the executive is represented by the executive board.
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• Type 4—Commercial company with majority private ownership; the executive is the (a) executive manager (b) the executive board. Therefore, the first two types of hospital are non-profit organizations, whilst the second are profit-oriented. Since financial indicators as ROA (return of assets), operating earnings or operating margin are being considered as the most valid subjective financial measures of hospital performance [60], the efficiency of a hospital’s corporate governance is primarily assessed through the economic results minus the operational subsidies for 2009 and 2012. Secondly, the efficiency of the hospitals was investigated in relationship to the type and size of hospital (number of beds), the size of the supervisory board and the medical qualification of the senior manager. A multiple median regression was used and the statistical significance was evaluated at ˛ = 5%. 4. Results The sample of 100 hospitals consisted of 14 Type 1 hospitals, 22 Type 2 hospitals, 43 Type 3 hospitals and 21 Type 4 hospitals. State hospitals (Type 1) are larger than the others, whilst private hospitals (Type 4) tend to have a smaller number of beds (see Table 2). The number of beds fell in 39 hospitals and rose in 20. In private hospitals the supervisory boards had between 0 and 6 members. They did not operate in state hospitals (Type 1). In 2009, Type 2 hospital supervisory boards had a maximum of five members, in 2012, six members. In both of these years the majority of these hospitals had a supervisory board with 0. For Type 3 hospitals, in 2009 the supervisory boards had between three and nine members, by 2012 the supervisory boards had increased to 12 members. Approximately half of the hospitals (52%, 50%) have a senior manager with a medical qualification. In 2009 only three doctors had an MBA title, in 2012 there were 13. Table 2 Hospital size and size of supervisory board according to the type of hospitals in years 2009 and 2012 – Summary statistics (Mean, Median, Lower Quartile, Upper Quartile, Minimum, Maximum); Number of hospitals with medical doctor as an executive senior manager – Absolute (relative) frequencies. Of the 100 hospitals included in the study, in 2009 77 finished the year in profit. In 2012 there were four fewer. The results (Table 3) show that the operational subsidies heavily distort the economic results, particularly for state hospitals. With the subsidies removed, the private hospitals had the best economic results in 2009. A similar situation can also be observed in 2012. However, in this year the economic results for state and private hospitals were worse than in 2009. It is worth noting that for self-governing hospitals, once the subsidies have been removed it was the non-commercial company hospitals which fared best. Table 3 Economic results with and without operating subsidies (OS) according to the type of hospitals in years 2009 and 2012 – Summary statistics (Mean, Median, Lower Quartile, Upper Quartile); Number of profitable hospitals (with and without operating subsidies) – Absolute
(relative) frequencies. For further analysis the economic results were used without the operating subsidy (abbreviation AER). The dependence of the AER on other factors (type and size of the hospital, size of supervisory board, executive manager) was examined using the multiple median (L1) regression. Median regression rather than the more classical mean (ordinary least squares) regression was used due to the distribution of the economic results exhibiting outlying values. That is, our results show the influence of the factors under consideration on the median of the AER rather than on its mean. Table 4 Results of the multiple median regression analysis for both 2009 and 2012—Estimates of partial regression parameters and corresponding p-values; Bonferroni Multiple comparison—estimates of differences of medians, adjusted p-values. In 2009, on the basis of multiple median regression, no statistical significant effect was seen. On the other hand, in 2012, partial dependency of AER on the type of hospital was proved. A multiple comparison, where the p-values were adjusted using the Bonferroni method, was performed to compare AER of hospitals of different type. In 2012, statistically significant difference was demonstrated between state hospitals (Type 1) and others (Type 2, 3, 4) and between commercial companies run by self-governing bodies (Type 3) and private owners (Type 4). State hospitals fared the worst while private ones fared best. If we were to compare the order of the hospital types from both years on the basis of estimates from multiple comparisons, the result would be the same: (1) private hospitals (Type 4), (2) non-commercial self-governing hospitals (Type 2), (3) commercial self-governing hospitals (Type 3) (4) state hospitals (Type 1). The results show that the relative differences between the individual types of hospitals has widened between 2009 and 2012. 5. Discussion This paper evaluated the results of the transformation of the legal form of hospitals in the Czech Republic and their associated economic success. This research showed the influence of operating subsidies on the economic performance of all types of hospitals. Thus, the objective was to determine the true efficiency of hospitals when the operating subsidy was removed from the economic results. Only in 2012 do the results demonstrate the statistically significant effect of the type of hospital on the adjusted economic results. In 2009 no relationship was found between economic results and any of the observed variables connected to the corporate governance of hospitals. In 2009 a large difference was recorded in economic performance, particularly in contributory hospitals owned by the state (Type1), including university hospitals, which without subsidies recorded significant losses. On the other hand, hospitals with the legal form of a commercial company with a majority private owner (Type 4) had positive economic results, with or without subsidies. As for achieving success in economic performance, in 2012 the individual types of hospitals again experienced worsening economic results. For all types of legal forms, for either state-owned or self-governing public hospitals
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Table 2 Hospital size and size of supervisory board according to the type of hospitals in years 2009 and 2012 – summary statistics (Mean, Median, Lower Quartile, Upper Quartile, Minimum, Maximum); Number of hospitals with medical doctor as an executive senior manager – absolute (relative) frequencies. Medical doctor as CEO (Number of hospitals)
Year 2009
Hospital size (Number of beds)
Supervisory board (Number of members)
Type
Mean
Med
LQ
UQ
Med
Min
Max
Abs. (Rel.) Freq
1 2 3 4 Total
1043 396 467 202 477
1080 364 316 162 314
323 196 166 142 161
1576 556 529 259 542
0 0 6 3 3
0 0 3 0 0
0 5 9 6 9
9 (64.3%) 11 (50.0%) 20 (46.5%) 12 (57.1%) 52 (52.0%)
Year 2012
Hospital size (Number of beds)
Type
Mean
Med
LQ
UQ
Med
Min
Max
Abs. (Rel.) Freq
1 2 3 4 Total
985 395 459 205 465
1000 400 316 158 315
323 167 174 120 162
1509 548 502 271 542
0 0 7 3 3
0 0 3 0 0
0 5 12 6 12
9 (64.3%) 9 (40.9%) 17 (39.5%) 15 (71.4%) 50 (50.0%)
Medical doctor as CEO (Number of hospitals)
Supervisory board (Number of members)
Table 3 Economic results with and without operating subsidies (OS) according to the type of hospitals in years 2009 and 2012 – summary statistics (Mean, Median, Lower Quartile, Upper Quartile); Number of profitable hospitals (with and without operating subsidies) – absolute (relative) frequencies. 2009
Economic result in mil. CZK
Type
Mean
Med
LQ
UQ
1 2 3 4 Total
25.3 −1.7 −4.1 15.8 4.7
10.8 0.1 0.3 8.9 1.8
4.8 0.0 −12.5 1.7 0.0
28.9 5.2 2.7 20.4 11.2
2012
Economic result in mil. CZK
Type
Mean
1 2 3 4 Total
5.8 0.1 −6.0 13.6 1.1
Med
LQ
1.1 0.3 0.0 3.6 0.4
0.5 0.1 −6.7 0.4 −0.1
Adjusted economic result w/o OS in mil. CZK
Profitable
Profitable w/o OS
Mean
Freq.
Freq.
14 (100.0%) 17 (77.3%) 26 (60.5%) 20 (95.2%) 77 (77.0%)
5 (35.7%) 7 (31.8%) 14 (32.6%) 18 (85.7%) 44 (44.0%)
Adjusted economic result w/o OS in mil. CZK
Profitable
Profitable w/o OS
UQ
Mean
Med
LQ
UQ
Freq.
Freq.
2.4 0.7 1.3 17.9 2.9
−100.7 −8.7 −34.1 1.4 −30.4
−98.5 −6.9 −14.4 1.0 −10.8
−107.3 −19.2 −37.0 −1.1 −29.4
−42.8 −0.5 −6.0 5.7 −0.4
14 (100.0%) 18 (81.8%) 23 (53.5%) 18 (85.7%) 73 (73.0%)
0 (0.0%) 3 (13.6%) 5 (11.6%) 12 (57.1%) 20 (20.0%)
−48.6 −10.0 −18.6 11.5 −14.6
Med −5.6 −2.7 −7.2 5.3 −1.6
LQ
UQ
−104.3 −13.2 −23.4 0.1 −16.3
8.2 2.9 0.3 15.8 5.3
Table 4 Results of multiple median regression analysis for the both years 2009 and 2012 – estimates of partial regression parameters and its corresponding p-values; Bonferroni Multiple comparison – estimates of differences of medians, adjusted p-values. Regression analysis
2009
Variable
Estimate
Type of hospital Hospital size Supervisory Board Medical doctor
See effect of type below −0.022 0.014 −0.345 0.748 −3.247 3.265
Effect of type
2009
Multiple comparison (Bonferroni method)
Estimate
Type 2 vs. Type 1 Type 3 vs. Type 1 Type 4 vs. Type 1 Type 3 vs. Type 2 Type 4 vs. Type 2 Type 4 vs. Type 3
3.55 0.69 9.71 −2.86 6.16 9.02
2012 Std. Error
P-value
Estimate
0.175 0.133 0.646 0.323
See effect of type below −0.003 0.010 0.399 0.744 −4.786 3.977
Std. Error
P-value
